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THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 
GIFT  OF 

.  Harold  E.   ives 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/burgesscommerciaOOburgiala 


William  Howard  Taft 

CHIEF  JUSTICE  OF  THB  SUPREME  COURT  OF  THE  UNITED  STATES 


BURGESS' 
COMMERCIAL   LAW 


A  TEXT  BOOK  FOR  ALL  CLASSES  OF  SCHOOLS  AND  COLLEGES  IN  WHICH 
COURSES  ARE  OFFERED  IN   COMMERCIAL  LAW 


BY 


KENNETH  F.  B.URGESS 

A   MEMBER   OF   THE   WISCONSIN   BAR 

AND 

-  JAMES  A.  LYONS 

AUTHOR   OF  LYONS'   COMMERCIAL   LAW,  ETC. 


LYONS  &  CARNAHAN 

CHICAGO  i\EW  YORK 


T 


COPYRIGHT,    1915,    1921,  BY 
LYONS  &  CARNAHAN 


PREFACE 

Those  who  compose  classes  in  commercial  law  are,  as  a  rule, 
without  business  experience,  in  fact,  without  much  of  any  sort  of 
experience  in  life.     The  subject  consists  almost  wholly  of  a  study 
of  business  situations  and  relations  that  have  been  unthought  of 
by  the  pupil.     Given  a  certain  state  of  facts;  the  law  is  a  state- 
ment of  the  rights  and  obligations  of  the  parties  growing  out 
therefrom.     It  is  therefore  of  itself  a  generalization.     To  be  com- 
prehended the  particulars  on  which  it  is  founded  must  be  clearly 
understood,  for  a  knowledge  of  the  particular  in  this  case  must 
precede  a  knowledge  of  the  general. 
.^       The  subject  is  therefore  not  an  easy  one  to  teach  and  the 
teacher  needs  every  aid  he  can  secure  from  his  textbook.     In  the 
^  preparation  of  this  book  both  the  teacher  and  the  pupil  have  been 
■-^  kept  constantly  in  mind ;  classroom  conditions  have  been  ever 
(4   before  the  authors.     The  experienced  teacher  comes  to  know 
"77  where  pupils  have  difificulty  and  what  they  comprehend  without 
great  effort.     A  knowledge  of  these  matters  has  enabled  the 
authors  to  give  unusual  attention  to  many  topics  in  the  text  that 
have  in  the  past  given  some  trouble  to  teachers. 

It  has  also  been  found  that  some  very  important  matters  of 
frequent  occurrence  in  business  have  not  heretofore  been  men- 
tioned in  any  text.  Such  topics  as  the  standing  of  the  merchant's 
rule  in  case  of  partial  payments;  when  a  creditor  is  entitled  to 
annual  interest  and  when  not;  when  title  to  goods  passes  in  case 
of  C.O.D.  shipments,  are  but  illustrations.  These  and  many 
others  like  them  are  considered  in  this  text  in  an  authoritative 
manner. 

It  is  believed  that  this  text  will  be  found  to  be  well  balanced, 
giving  proper  attention  to  each  topic;  and  above  all  things  the 
authors  express  their  confidence  in  the  superior  teaching  quali- 
ties of  the  book,  fully  believing  that  a  textbook  is  valuable  not  so 
much  for  what  it  contains  as  for  what  the  pupil  may  be  able  to  get 
from  it  and  make  his  own. 

The  time  allotted  to  the  study  of  Commercial  Law  varies 
widely  in  different  schools.     Burgess'  Commercml  Law  is  designed 

iii 


IV 


PREFACE 


to  meet  the  needs  of  the  average  school  in  this  respect.  For 
schools  that  devote  unusually  short  periods  to  the  subject,  or 
where  the  time  allowed  is  unusually  limited,  the  authors  suggest 
the  omission  of  chapters  XXXI,  XXXII,  XLI,  XLII,  XLIII, 
and  XLIV.  It  is  believed  that  it  will  be  much  better  to  omit 
bodily  the  topics  treated  in  these  chapters  than  to  attempt  to 
shorten  the  course  by  hasty  work  throughout. 


CONTENTS 


CHAPTER 
I. 
11. 
III. 

IV. 
V. 

VI. 

VII. 

VIII. 

IX. 

X. 

XI. 

XII. 


XIII. 

XIV. 

XV. 

XVI. 

XVII. 

XVIII. 

XIX. 

XX. 

XXI. 


XXII. 


XXIII. 

XXIV. 

XXV. 

XXVI. 

XXVII. 

XXVIII. 


XXIX. 

XXX. 

XXXI. 

XXXII. 


Contracts  in  General  PAGE 

Kinds  of  Law 1 

Property 7 

Contracts 11 

Competent  Parties 21 

The  Agreement 30 

Consideration 40 

Subject  Matter 47 

Discharge  of  Contracts 52 

Discharge  of  Contracts  by  Breach 62 

Rernedies 69 

Special  Defenses 74 

Miscellaneous  Matters 85 

Negotiable  Instruments 

Negotiable  Instruments 93 

Drafts ^ 104 

Checks 112 

Notes 119 

Holder  in  Due  Course 126 

Transfer 135 

Presentment  for  Acceptance 144 

Presentment  for  Payment 151 

Interest 160 

Guaranty  and  Suretyship 
Guaranty  and  Suretyship 167 

Sales  of  Personal  Property 

Sales  of  Personal  Property       178 

Form  of  Contract  of  Sale 184 

Transfer  of  Title 191 

Transfer  by  Bills  of  Lading  and  Warehouse  Receipts   .    .    .   200 

Warranties 207 

Remedies  of  Parties      212 

Bailments 

Bailments , 218 

Bailment  for  Benefit  of  Bailee 225 

Bailments  for  Mutual  Benefit  —  Hire 231 

Exceptional  Bailments 238 

V 


VI 

CHAPTER 
XXXIII. 

XXXIV. 
XXXV. 

XXXVI. 


XXXVII. 

XXXVIII. 

XXXIX. 


XL. 
XLI. 


XLII. 


XLIII. 
XLIV. 


XLV. 

XLVI. 

XLVII. 

XLVI  1 1. 


CONTENTS 

Agency  PAGE 

Agency 248 

Agency — Duties  of  agent 256 

Agency — Duties  of  principal 262 

Agency — Liabilities  of  third  persons 269 

Partnership 

Partnership 275 

Partnership) — Authority  of  partners 282 

Dissolution  of  Partnership 288 

Corporations  ' 

Corporations ' 296 

Corporations,  continued      310 

Joint  Stock  Companies 

Joint  Stock'Companies 318 

Insurance 

Insurance       320 

Insurance,  continued 329 

Real  Estate 

Real  Estate 337 

Real  Estate  Conveyances — Deeds 347 

Real  Estate  Conveyances — Mortgages 358 

Real  Estate  Conveyances — Leases 367 

Index 375 

Appendix 381 


BIBLIOGRAPHY 

It  may  at  times  be  found  advantageous  to  supplement  the  discussion 
in  the  text  with  reference  books.  The  student  may  often  obtain  access  to 
such  books  in  a  law  office  or  law  library.  If  these  sources  are  not  available, 
the  following  books  are  suggested  as  appropriate  for  reference.  The  pub- 
lisher's name  is  shown  in  parenthesis  following  the  name  of  the  author.  These 
books  may  be  purchased  through  any  standard  law  book  dealer,  and  second 
hand  copies  may  often  be  secured.  One  book  on  a  subject  will  be  found 
sufficient. 

CONTRACTS  ^^.^^^ 

Harriman,  E.  A.    (Little,  Brown  &  Co.,  Boston,  Mass.) $3.00 

Clark,  W.  L.  Jr.  (West  Publishing  Co.,  St.  Paul,  Minn.) 3.75 

NEGOTIABLE  INSTRUMENTS 

Norton,  Ed.  by  Moore  &  Wilkie  (West  Publishing  Co.,  St.  Paul,  Minn.)    .   3 .  75 
Bigelow,  M.  M.  on  Bills  and   Notes,   (Little,  Brown  &  Co.,  Boston, 

Mass.) 3.00 

GUARANTY  AND  SURETYSHIP 
Spencer,  E.  W.  (Callaghan  &  Co.,  Chicago,  111.) 4.00 

SALES 
Burdick,  F.  M.  (Little,  Brown  &  Co.,  Boston,  Mass.) 3.00 

BAILMENTS 

Goddard,  E.  C.  "Outlines"  (Callaghan  &  Co.,  Chicago,  111.) 2.50 

Schouler,  J.  (Little,  Brown  &  Co.,  Boston,  Mass.)      3.00 

AGENCY 

Mechem,  F.  R.  "Outlines"  (Callaghan  &  Co.,  Chicago,  III.) 2.00 

Tiffany,  F.  B.  (West  Publishing  Co.,  St.  Paul,  Minn.) 3.75 

PARTNERSHIP 

Mechem,  F.  R.  (Callaghan  &  Co.,  Chicago,  111.) 2.50 

Burdick,  F.  M.  (Little,  Brown  &  Co.,  Boston,  Mass.) 3.00 

CORPORATIONS 
Marshall,  W.  L.  (Callaghan  &  Co.,  Chicago,  111.) 5.00 

REAL  ESTATE 

Tiedeman,  C.  G.  (F.  H.  Thomas  &  Co.,  St.  Louis) 6.00 

Goodwin,  F.  (Little,  Brown  &  Co.,  Boston,  Mass.) 4.00 

LAW  DICTIONARIES 

Anderson,  W.  C.  (T.  H.  Flood  &  Co.,  Chicago,  111.)       .    .    .    .    .    .    .    .5.00 

Cyclopedic  Law  Dictionary  (Callaghan  &  Co.,  Chicago,  111.)    .  *.    .    .    .   6.00 

vii 


GENERAL   OUTLINE   OF   MUNICIPAL  LAW 

of  which  Commercial  Law  is  a  part 


{1.  National 
2.  State 


fa.  Civil 
1 .  National  < 

lb.  Criminal 


II.  Statute  < 


fa.  Civil 
2.  State  < 

lb.  Criminal 


{1.  Civil       [a.  Suits  at  law 
enforced  by  < 
2.  Criminal    (b.  Suits  in  equity 


BURGESS'   COMMERCIAL  LAW 


CHAPTER   I 


KINDS   OF  LAW 

1.  Law  Is  a  rule  of  action  or  conduct,  prescribed  by  an 
authority  able  to  enforce  its  will. 

Law  is  in  its  nature  a  command.  The  head  of  the  family, 
who  in  the  most  ancient  times  regulated  its  encampments  and 
employments,  was  among  the  first  of  "law-givers,"  and  his  direc- 
tions, being  the  orders  given  by  one  who  had  power  to  enforce 
them,  were  the  earliest  "laws."  If  his  laws  were  not  observed 
he  provided  a  suitable  penalty,  and  his  power  to  inflict  the  penalty 
gave  him  indirectly  the  power  to  enforce  the  law. 

2.  The  Object  of  Law  is  to  protect  persons  in  the  enjoyment 
of  their  rights  and  to  punish  others  who  interfere  with  these 
rights.  The  rules  of  action  or  conduct,  of  which  law  consists, 
define,  limit,  and  protect  the  rights  of  the  individual  living  in 
organized  society. 

A  person  of  suitable  age  has  a  right  to  attend  a  public  school,  because  the 
law  declares  that  he  may  do  so.  His  father  has  a  right  to  vote  for  public 
officers,  because  the  law  has  given  him  this  right.  Each  person  has  thousands 
of  these  law-given  rights.  He  has  among  other  things,  the  right  to  life,  the 
right  to  liberty,  the  right  to  marry,  the  right  to  acquire  property,  and  the  right 
to  make  contracts. 

Each  time  that  the  law  declares  that  one  person  may  have 
certain  rights  by  conforming  to  certain  standards,  it  likewise 
declares  that  other  persons  must  respect  these  rights.  The 
object  of  law  being  therefore  to  define  rights  and  to  protect 
persons  in  their  enjoyment  of  these  rights,  it  is  essential  that 
our  inquiry  be  directed  in  every  instance,  not  only  to  determining 
what  the  law  is,  but  to  discovering  the  individual's  rights  and 
duties  in  respect  to  the  law. 

1 


2  KINDS  OF  LAW 

3.  Municipal  Law*  is  that  body  of  rules  which  govern 
the  conduct  of  the  individual,  prescribed  by  the  supreme  power 
in  the  state,  f  commanding  that  which  is  right  and  prohibiting 
that  which  is  wrong.  If  the  law-giving  authority  is  the  state, 
then  the  rule  which  it  prescribes  is  termed  "municipal"  law.  The 
word  "municipal"  is  a  survival  of  the  language  of  ancient  times 
when  the  city  (municipality)  was  the  supreme  power,  as  were 
Athens  and  Rome,  in  modern  times  the  term  is  applied  also  to 
laws  prescribed  by  nations  and  independent  states,  as  England, 
the  United  States,  Illinois,  or  Texas. 

That  municipal  law  is  necessary  to  the  existence  of  a  state,  or  other  gov- 
ernment, is  seen  when  one  realizes  that  without  laws  the  state  could  not  be 
kept  together.  It  would  be  only  an  unorganized  mass  of  individuals.  In 
such  unorganized  society  there  would  be  present  a  tendency  on  the  part  of 
some  individuals  to  be  unjust  to  others.  In  order  to  protect  itself,  and  to 
protect  the  individual,  society  must  group  itself  into  units,  or  states,  with 
power  to  create  and  enforce  municipal  laws. 

4.  Extent  of  Laws.  Each  unit,  which  may  be  either  a 
nation  or  the  sub-division  of  a  nation,  must  have  its  own  laws 
governing  the  conduct  and  property  of  individuals  within  its 
boundaries.  It  follows  that  the  laws  created  by  a  unit  of  society 
can  be  enforced  only  within  its  boundaries,  and  have  no  appli- 
cation to  persons  residing  in  other  units,  except  when  they  come 
within  its  boundaries  to  reside  or  to  transact  business. 

5.  Kinds  of  Municipal  Law.  In  our  own  country  there  are 
three  kinds  of  municipal  law,  namely,  (1)  Constitutional  Law, 
(2)  Statute  Law,  and  (3)  Common  Law.  They  are  here  stated 
in  the  order  in  which  they  have  precedence  when  they  conflict. 

6.  Constitutional  Law  is  that  body  of  laws  which  enumerates 
the  rights  and   limitations  of   the   government,    the   mode   of 


*  The  terms  "Natural"  and  "Moral"  Law  are  frequently  employed,  but 
the  use  of  the  word  "law"  in  such  connection  is  with  a  meaning  different  from 
that  in  which  it  is  used  in  this  text.  A  discussion  of  International  Law  is 
also  omitted  from  the  text  for  the  reason  that  its  source,  manner  of  enforce- 
ment and  rules  are  of  little  value  to  the  business  man  or  to  his  correct  under- 
standing of  the  principles  of  commercial  law. 

t  The  term  "State"  must  not  be  understood  to  be  restricted  to  one  of  the 
political  units  of  the  United  States,  but  to  have  that  broader  meaning  that 
includes  any  political  body  of  people  who  are  united  under  one  government, 
whatever  the  form  of  it  may  be. 


KINDS   OF   LAW  3 

exercising  those  rights,  and  the  relation  of  the  sovereign  state  to 
the  citizen. 

In  the  United  States  there  is  a  divided  sovereignty.  When 
the  original  states  met  to  form  the  Union,  they  voluntarily 
surrendered  some  of  their  rights  to  the  Federal  government, 
keeping  the  remainder  to  themselves.  In  the  Federal  constitu- 
tion, which  they  formed,  they  enumerated  the  powers  which 
the  new  Federal  government  should  have,  and  strictly  limited 
it  to  these  specified  powers.  The  powers  and  rights  which  were 
not  expressly  delegated  to  the  Federal  government  in  this 
Federal  constitution  were  reserved  to  the  states.  Each  state 
also  has  a  constitution  which  represents  the  will  of  the  people  of 
the  state,  declaring  and  limiting  the  powers  of  the  state  toward 
its  citizens. 

7.  Statute  Law  is  that  body  of  rules  of  conduct  and  action 
enacted  by  the  legislative  body  of  a  state  or  nation,  by  virtue  of 
the  powers  given  in  the  constitution.  These  usually  take  the 
form  of  defining  the  rights  and  duties  of  persons  toward  each 
other  and  toward  the  state.  When  it  is  desired  that  new  rights 
and  duties  should  be  defined  and  created,  a  bill  is  presented  before 
the  legislative  body.  If  it  is  adopted  by  the  legislative  body  and 
approved  by  the  executive  officer  of  the  unit  of  government, 
the  bill  becomes  a  statute  and  is  binding  on  all  persons  within 
the  boundaries  of  the  unit  declaring  it. 

Thus  if  the  Federal  government  desires  to  create  a  law  regulating  train 
service  between  two  states,  a  bill  to  this  effect  may  be  passed  by  the  U.  S. 
Congress.  When  approved  by  the  President  the  bill  becomes  a  new  Federal 
statute,  which  will  then  be  binding  on  the  railroads.  Or  if  a  state  desires  to 
regulate  the  sale  of  cigarettes  within  its  boundaries,  a  bill  to  this  effect  may  be 
passed  by  the  state  legislature.  When  approved  by  the  governor  the  bill 
becomes  a  state  statute,  which  will  be  binding  on  all  persons  within  the  state. 

8.  Common  Law.  Not  all  rights  and  duties  as  between 
individuals  have  been  defined  by  either  state  or  Federal  statutes. 
When  no  statute  exists  so  defining  these  rights  and  duties  on  a 
particular  subject,  a  body  of  rules  of  conduct  and  action  known  as 
the  common  law  applies.  This  common  law  is  also  called  the 
unwritten  law,  because  it  is  not  formally  expressed  as  is  statute 
law.     It  is  found  in  the  reported  decisions  of  the  courts.     It 


4  KINDS   OF   LAW 

came  into  existence  at  an  early  day  when  English  courts  were 
frequently  called  upon  to  decide  disputes  about  matters  which 
were  not  covered  by  statutes.  The  courts  decided  these  matters 
on  principles  of  justice,  and  when  a  similar  case  again  came  before 
the  court,  it  decided  this  in  the  same  way  that  the  previous 
case  had  been  decided.  The  policy  was  thus  established  of 
looking  back  to  see  how  former  disputes  of  a  similar  nature  had 
been  decided,  and  when  a  decision  was  found  on  a  similar  point 
it  was  caHed  a  precedent.  The  general  body  of  the  common  law 
consists  of  these  precedents. 

The  following  will  show  how  the  different  states  adopted  the  English  law. 

"That  the  common  law  of  England  so  far  as  the  same  is  applicable  and  of 
a  general  nature,  and  all  statutes  or  acts  of  the  British  parliament  made  in 
aid  of,  and  to  supply  the  defects  of  the  common  law,  prior  to  the  fourth  year 
of  James  the  First,  and  which  are  of  a  general  nature  and  not  local  to  that 
kingdom,  shall  be  the  rule  of  decision,  and  shall  be  considered  as  of  full  force 
until  repealed  by  legislative  authority." —  Act  of  the  General  Convention  of 
Delegates  of  the  Colony  of  Virginia,  held  at  Williamsburg,  Monday,  May  6, 
1776. 

Similar  statutes  have  been  passed  by  most  if  not  all  of  the  states  except 
Louisiana,  which  being  colonized  by  the  French  adopted  the  system  of  law  in 
vogue  in  France,  known  as  the  Civil  Law* 

9.  Order  of  Precedence.  The  Federal  constitution  con- 
sists of  an  enumeration  of  certain  rights  and  powers  relinquished 
by  the  states  to  the  general  government;  it  is,  therefore,  the 
supreme  law  of  the  land  in  regard  to  all  matters  contained  in  it. 
The  Federal  statutes,  being  made  in  strict  accordance  with  the 
constitution,  must  necessarily  come  next  in  order.  The  states, 
as  we  have  seen,  reserve  to  themselves  supreme  authority  on 
many  questions;  they  have  also  placed  numerous  restrictions 
upon  their  own  government.  In  regard  to  all  these  matters  the 
state  constitutions  of  the  several  states  are  supreme  in  authority. 
State  statutes  made  in  accordance  with  the  state  constitution 
are  next  in  authority.  The  common  law  applies  when  there  is 
no  constitutional  law  or  statutory  law  which  will  apply.  When 
there  is  a  conflict  between  a  statute  and  the  common  law,  the 
statute  takes  precedence. 

*  The  term  Civil  Law  as  employed  in  this  connection  is  used  only  in  the 
sense  of  distinguishing  it  from  the  Common  Law  of  England. 


KINDS   OF  LAW  5 

Since  the  common  law  is  in  force  wherever  there  is  no  statute  upon  a  sub- 
ject, it  supplies  what  in  many  cases  would  be  a  great  deficiency  in  our  statute 
law.  No  legislature  could  possibly  foresee  and  provide  for  all  the  possible 
contingencies  and  difficulties  that  could,  and  do,  arise  in  the  business  relations 
of  a  complex  civilization. 

10.  Courts.  Their  Function.  Not  only  has  organized 
society  adopted  a  body  of  rules  of  action  and  conduct,  but  it  has 
provided  a  means  by  which  these  rules  can  be  enforced.  The 
organized  instrumentalities  for  interpreting  and  enforcing  laws 
are  called  courts.  A  court  has  three  functions.  These  are, 
(1)  to  decide  in  case  of  dispute  what  the  law  is,  (2)  to  punish 
persons  who  violate  the  law,  and  (3)  to  compel  one  person  to 
render  justice  to  another. 

Federal  statutes  are  usually  enforced  by  Federal  courts  only, 
•yhich  courts  also  decide  matters  arising  under  the  Federal 
constitution,  and  disputes  between  citizens  of  different  states. 
State  courts  enforce  the  state  statutes,  decide  questions  arising 
under  the  state  constitution,  and  interpret  and  enforce  the 
common  law  in  cases  that  come  under  the  jurisdiction  of  the 
state. 

In  the  present  text  we  shall  study  only  questions  of  civil  law 
as  distinguished  from  criminal  law.  Criminal  law  defines,  and 
provides  penalties  for,  offenses  against  the  state  and  society  at 
large;  civil  law  regulates  the  conduct  of  individuals  towards 
each  other.     Both  are  often  enforced  by  the  same  courts. 

We  shall  treat  of  the  courts  as  deciding  the  questions  which  may  arise 
between  business  men,  but  the  student  must  bear  in  mind  that  the  courts  of 
the  present  do  not  make  the  law  —  that  is  the  function  of  the  legislative 
branch  of  our  government.     Courts  merely  interpret  and  enforce  the  law 

A  suit  at  law  is  the  method  by  which  a  dispute  over  legut 
rights  and  duties  is  brought  before  the  court.  It  is  the  method 
by  which  one  person,  who  believes  his  rights  to  have  been 
violated  by  another,  may  compel  the  latter  to  come  before  the 
court  to  have  decision  made  in  the  matter.  If  it  be  decided  that 
a  right  has  been  violated,  the  person  who  has  been  injured  is 
given  an  appropriate  remedy. 

The  term  stiit  at  law  is  sometimes  used  in  a  more  restricted 
sense  as  distinguished  from  a  suit  in  equity.  The  word  equity 
means  justice.     Equity  courts  are  special  courts  to  which  are 


5  KINDS  OF   LAW 

taken  disputes  in  which  substantial  justice  can  not  be  secured 
under  the  statutes  and  precedents  by  which  courts  of  law  must 
be  guided. 

Today  the  chief  distinctions  between  a  suit  at  law  and  a  suit 
in  equity  is  that  the  former  is  usually  tried  by  a  jury,  the  latter 
by  a  judge;  and  that  in  the  former  money  damages  are  usually 
the  only  remedy,  while  in  the  latter  the  remedy  may  be  of  a  more 
personal  nature,  as  compelling  a  man  to  do  that  which  he  prom- 
ised to  do,  called  remedy  by  specific  performance,  or  prohibiting 
him  from  doing  something  unlawful  which  he  threatens  to  do, 
called  remedy  by  injunction. 

Equity  courts  also  deal  with  matters  of  divorce,  mortgages  and  trusts. 
The  distinction  is  of  little  practical  importance  to  the  business  man  except 
that  he  should  understand  the  nature  of  the  remedy  which  he  may  secure  in 
the  different  courts.  Some  matters  can  be  tried  by  a  suit  at  law  only;  some  by 
a  suit  in  equity  only;  some  by  either  as  the  person  injured  may  elect. 

11.  Commercial  Law  is  that  part  of  municipal  law  applicable 
to  business  transactions.  It  is  not  an  isolated  branch  of  law,  but 
includes  a  variety  of  topics  whose  only  relation  to  each  other  is 
that  they  are  all  of  importance  in  the  transaction  of  the  ordinary 
affairs  of  commerce. 

It  is  the  existence  of  law  which  differentiates  civilized  from 
barbaric  society.  Because  of  law  the  man  of  business  dares  to 
engage  in  ventures  which  may  bring  him  no  immediate  return. 
He  dares  to  acquire  property,  to  place  his  money  in  the  bank 
or  to  invest  it  in  commercial  undertakings,  to  agree  to  buy  and  to 
sell  commodities  in  the  future.  Without  law  and  law-defined 
rights  he  could  not  safely  do  any  of  these  things.  It  is  therefore 
of  importance  for  every  business  man  to  know  the  municipal 
law  in  so  far,  at  least,  as  it  deals  with  the  affairs  of  commerce. 


CHAPTER   II 
PROPERTY 

(1.   Real 
I.   Kinds  <  [a.   Things  in  possession 

[2.   Personal  < 

(b.   Things  in  action 

{1.    In  possession 
2.    In  expectancy 


III.   How  held 


1.  In  Severalty 

2.  In  Joint  Tenancy 

3.  In  Tenancy  in  Common 

4.  By  Partners 

5.  By  Corporations 

6.  By  Joint  Stock  Companies 


12.  Property  in  its  legal  sense  is  anything  to  which  one  has 
title.  A  property  right  is  the  power  or  dominion  over  a  thing 
to  the  exclusion  of  others.  Property  is  not,  as  commonly  sup- 
posed, the  thing  itself,  but  is  the  right  to  the  thing.  By  the 
ownership  of  property  one  is  given  the  right  to  use,  enjoy,  and 
dispose  of  it,  without  any  limitation  except  that  it  must  not  be 
used  to  the  injury  of  another,  or  contrary  to  law.  That  one  is 
possessed  of  a  property  right  may  be  evidenced  by  actual  physi- 
cal control,  or  the  evidence  may  consist  merely  of  an  instrument 
of  title,  that  is,  some  legal  document  in  writing,  such  as  a  ware- 
house receipt,  a  deed,  a  note,  or  a  bill  of  lading.  Actual  pos- 
session is  not  necessary  to  establish  a  property  right. 

13.  Property  may  be  either  real  or  personal. 

Real  property,  realty,  or  real  estate,  includes  all  property 
which  is  fixed  or  immovable,  such  as  land,  together  with  what  is 
permanently  attached  to  it,  or  is  built  or  growing  upon  its  sur- 
face, and  the  minerals  which  are  beneath  the  surface.     Things 

7 


8  "^  PROPERTY 

which  are  annexed  to  the  soil  or  the  building,  with  the  intention 
that  they  shall  become  permanent  improvements,  or  things 
which  cannot  be  removed  without  injury  to  the  soil  or  buildings, 
are  also  real  property,  and  are  called  fixtures.  Such  are  chim- 
neys, pumps,  fences,  and  the  like. 

There  are  three  apparent  exceptions  to  the  rule  that  things 
annexed  to  the  land  become  real  property.  These  are  where  the 
thing  so  annexed  is  (1)  a  trade  fixture,  (2)  a  domestic  fixture,  or 
(3)  an  agricultural  fixture.  Such  things  are  installed  by  the 
occupant  for  his  own  convenience  while  he  occupies  the  premises. 
He  may  remove  them  at  any  time  before  he  leaves.  But  if  he 
surrenders  possession  of  the  land  without  removing  them,  even 
such  things  are  considered  to  be  real  property  and  may  be  treated 
as  such  by  the  person  to  whom  he  has  surrendered  possession. 

EXAMPLE 

Josslyn  rented  a  store  of  McCabe  and  put  into  the  store  shelving  loosely 
attached  to  the  walls,  to  hold  dry-goods.  When  Josslyn  moved  to  another 
store  he  left  this  shelving,  intending  to  remove  it  later,  but  when  he  attempted 
to  remove  it  McCabe  refused  to  allow  him  to  do  so.  In  a  suit  at  law,  the 
court  decided  that  McCabe  was  right,  and  that,  although  the  shelves  were 
trade  fixtures  and  could  have  been  removed  by  Josslyn  so  long  as  he  had  pos- 
session of  the  store,  he  lost  his  right  to  remove  them  when  he  surrendered 
possession  and  they  were  then  to  be  treated  as  annexed  permanently  to  the 
land  and  as  real  property.     Josslyn  vs.  McCabe,  46  Wis.  591*. 

14.  Personal  property  is  anything  that  is  movable,  that  a 
person  may  take  with  him  wherever  he  goes.  The  legal  term 
"chattel"  is  often  used  to  designate  an  article  of  personal  prop- 
erty. Trees  while  growing  upon  the  land  are  usually  considered 
real  estate,  but  when  cut  and  lying  as  logs  or  lumber,  they  are 
personal  property,  or  chattels.      Similarly,  minerals  while  yet  in 

*  This  is  the  uniform -method  adopted  by  all  legal  text-books  in  referring 
to  a  decision  rendered  by  a  supreme  court  of  a  state  or  nation.  The  first  figure 
refers  to  the  volume  and  the  last  to  the  page.  In  the  above  example  this  case 
will  be  found  in  volume  46  of  the  supreme  court  reports  of  the  state  of  Wiscon- 
sin on  page  591.  Similarly,  91  U.  S.  52,  refers  to  volume  91  of  the  supreme 
court  reports  of  the  United  States  on  page  52.  The  terms  "N.  W.",  "N.  E.", 
"Atl."  etc.,  refer  to  a  collected  series  of  state  reports  in  which  the  decisions 
of  several  states  in  a  section  of  the  country  are  bound  together  in  one  volume. 
For  example,  the  N.  W.,  or  Northwestern  reports,  include  thj  states  of  Iowa, 
Nebraska,  Minnesota,  North  Dakota,  South  Dakota,  Wisconsin,  and  Mich- 
igan 


PROPERTY  9 

the  earth  are  a  part  of  the  realty,  but  when  dug  and  thrown  out 
on  the  ground  they  become  personal  property. 

It  is  therefore  evident  that  a  thing  which  is  personal  property  may  become 
real  property,  by  being  permanently  annexed  to  the  land  or  buildings,  and  also 
that  a  part  of  the  real  estate  may  be  severed  and  become  personal  property. 

15.  Personal  property  is  divided  into  things  in  possession 
and  things  in  action. 

Things  in  possession  are  those  things  which  the  owner  not 
only  has  the  right  to,  but  also  actually  possesses.  All  material 
objects,  such  as  money,  tools,  garments,  or  vegetables  and  plants 
when  not  growing  in  the  ground,  and  all  domestic  and  tame 
animals,  may  be  things  in  possession. 

Things  in  action  naturally  include  all  those  things  to  which 
one  has  merely  a  right,  but  not  the  actual  possession.  This  name 
is  given  them  because  at  the  proper  time  the  owner  may,  if  he 
wishes,  bring  an  action  at  law  to  give  him  possession  of  them. 
All  forms  of  indebtedness,  whether  evidenced  by  notes  or  on 
account,  are  things  in  action. 

EXAMPLE 

1.  If  A  has  a  thing  in  possession,  as  a  horse,  and  sells  it  to  B,  taking 
B's  written  promise  that  at  some  future  time  he  will  pay  $200  to  A  for  the  horse, 
B's  obligation  to  pay,  which  is  evidenced  by  the  note,  is  a  thing  in  action  to  A. 
When  the  debt  is  paid,  the  money  is  a  thing  in  possession. 

2.  If  Ames  injures  Bates  by  striking  him  wilfully,  Bates  has  a  right  to 
recover  all  the  damages  which  he  suffered  because  of  the  injury  from  Ames. 
This  right  is  also  a  thing  in  action,  which  may  by  a  suit  at  law  be  reduced  to  a 
right  in  possession. 

16.  Time  of  Enjoyment.     It  is  usual  for  the  person  who  owns 

property  to  have  also  the  right  to  its  present  enjoyment,  that  is, 
to  use  it  at  once  if  he  so  desires.  There  are  some  instances, 
however,  in  which  the  owner  is  considered  as  having  a  property 
right  in  the  thing,  but  his  enjoyment  of  it  is  postponed  until 
some  future  time.  In  such  a  case  his  property  right  is  said  to  be 
a  right  in  expectancy.  For  instance,  it  often  happens  that  a 
man  wills  his  home  to  his  wife  to  enjoy  during  her  life-time,  and 
after  her  death  to  his  son.  At  the  death  of  the  husband  both  the 
wife  and  the  son  get  property  rights  in  the  home,  but  the  >son's 
right  to  enjoy  his  property  is  postponed  until  the  wife's  death. 


10  PROPERTY 

17.  Property  is  held  in  severalty  when  it  is  all  owned  by  a 
single  individual. 

It  is  held  in  joint  tenancy  when  two  or  more  persons  take 
ownership  of  the  same  piece  of  property  at  the  same  time,  with  the 
same  interest,  and  by  the  same  written  document,  or  instrument. 
These  joint  tenants  each  own  an  equal  interest,  not  only  in  every 
part  of  it,  but  in  the  whole,  and  each  is  entitled  to  possession  of 
the  whole.  E^ch  receives  an  equal  share  of  the  proceeds  of  the 
property.  The  striking  peculiarity  of  this  way  of  holding  prop- 
erty is  what  is  called  the  right  of  survivorship;  when  one  of  the 
joint-tenants  dies,  the  entire  property  belongs  to  the  surviving 
joint-tenant  or  joint-tenants,  until  finally  the  last  survivor  is 
entitled  to  the  whole  estate.  Both  real  and  personal  property 
may  be  held  in  joint  tenancy,  though  a  joint  tenancy  in  personal 
property  is  extremely  rare. 

Joint  tenancies  were  favored  by  the  early  common  law,  but 
are  not  now  favored  in  the  United  States,  and  in  many  states* 
the  right  of  survivorship  has  been  abolished  by  special  statute, 
in  whole  or  in  part.  Other  states  require  that  unless  the  intention 
to  create  a  joint  tenancy  is  clearly  expressed,  the  tenancy  will 
be,  considered  to  be  a  tenancy  in  common. 

Property  is  held  in  tenancy  in  common  when  two  or  more 
owners  possess  either  equal  or  differing  shares  in  it,  without  the 
right  of  survivorship.  On  the  death  of  one  such  tenant  in  com- 
mon, his  share  passes  to  his  heirs,  or  personal  representatives. 

18.  Property  may  also  be  owned  by  partnerships,  corpora- 
tions or  joint  stock  companies. 

*  Arkansas,  California,  Iowa,  Kansas,  New  York,  Pennsylvania,  South 
Carolina,  Ohio,  Connecticut,  Kentucky,  Mississippi,  Colorado,  and  Tennessee. 


CHAPTER   III 


I.   Essentials 


CONTRACTS 

1 .  Competent  Parties 

2.  Mutual  Agreement  or  Assent 

3.  Consideration 

4.  Legal  Subject  Matter 


II.  Kinds  as  to  Validity 


(1.  Valid 

2.  Void 

3.  Voidable 

4.  Unenforceable 


)^ 


III.  Kinds  as  to 
Solemnity 


1.  Formal,  or  Contracts  under 
Seal 


2 .  Simple 


IV.  Kinds  as  to  Expression 


V.  Kinds  as  to  Time  of  Performance^ 

12 


a.  Written 

b.  Oral 

c.  Implied 

1 .  Express 

2.  Implied 
(1 .   Executory 

Executed 


VI,  Relation  to  Each  Other fl.  Several 
of  Parties  on  Same    <2.  Joint 
Side  (3.  Joint'  and  Several  ^\^ 


19.  Introductory.  In  the  preceding  chapter  it  was  stated 
that  one  of  the  law-given  rights  of  the  individual  was  the  right 
to  make  contracts.  Without  this  right  the  transaction  of  present 
day  business  would  be  impossible.  The  right  to  make  contracts 
is  the  basis  of  even  the  most  minute  of  the  individual's  commer- 
cial activities.  When  he  pays  a  nickel  on  entering  a  street  car, 
when  he  orders  groceries  sent  to  his  home,  even  when  he  buys  a 

11 


12  CONTRACTS 

newspaper  on  the  street,  he  is  exercising  this  right  to  make 
contracts.  The  contract  is  the  instrument,  the  medium,  by 
which  modern  business  is  transacted,  and  by  its  use  one  person 
may  acquire  a  special  control  over  the  acts  and  property  of  others. 

20.  A  Contract  is  an  agreement  between  two  or  more 
competent  parties,  based  upon  a  sufficient  consideration,  to  do 
or  not  to  do  some  lawful,  possible  thing.  This  definition  con- 
tains four  important  essentials,  or  conditions  necessary  to  create 
a  contract,  which  are  discussed  in  detail.     These  conditions  are : 

1 .  Competent  parties, 

2.  Mutual  agreement, 

3.  Consideration,*  and, 

4.  Legal  subject-matter. 

For  the  present  it  will  be  necessary  to  consider  a  contract 
only  from  the  standpoint  of  offer  and  acceptance,  which  together 
make  up  the  mutual  agreement.  Every  offer  which  is  accepted 
does  not  become  a  contract,  because  the  other  conditions  of  the 
contract  relation  listed  above  may  not  be  present.  But  every 
contract  does  consist  in  its  essential  parts  of  these  two  things  — 
offer  and  acceptance.  When  Ames  offers  to  sell  his  horse  to 
Bates  for  $100,  if  Bates  says,  "I  accept,"  then  there  comes  into 
being  a  contract.  Thereafter  if  Ames  refuses  to  deliver  the  horse. 
Bates  may  sue  him  for  the  refusal ;  or  if  Ames  has  delivered  the 
horse  and  Bates  refuses  to  pay,  then  Ames  may  sue  for  the 
agreed  price.  At  the  outset  we  must  conceive  of  every  contract 
as  consisting  of  these  two  elements. 

EXAMPLES 

1.  Smith  says  to  Jones,  "If  you  will  agree  to  dig  my  well,  I  will  pay  you 
fifty  dollars  for  your  work."  Brown,  who  overhears  this  statement,  says, 
"I  will  accept  that  offer."  This  does  not  create  a  contract,  because  Smith 
made  no  offer  to  Brown. 

2.  Baldwin  says  to  Rogers,  "I  think  I  would  sell  my  house  for  $1500." 
Rogers  says,  "I  accept  that  offer."  This  does  not  create  a  contract  because 
Baldwin's  statement  is  not  an  offer. 

3.  Murphy  says  to  Hawley,  "I  will  pay  you  seventy-five  dollars  to  paint 
my  house."     Hawley  replies,  "I  will  accept  for  ninety  dollars."     This  does  not 

*  Consideration  is  the  thing  of  value  which  is  transferred  from  one  party 
to  the  other  at  the  time  of  making  the  contract.  It  may  be  money,  a  thing, 
or  a  promise.     Subject  matter  is  that  about  which  the  agreement  is  made. 


CONTRACTS  13 

create  a  contract,  because  Hawley  has  not  accepted  Murphy's  offer.  He  has 
changed  the  terms  of  the  oflfer  and  has  in  reality  himself  made  a  new  offer  — 
an  oflfer  to  paint  the  house  for  a  larger  sum. 

EXERCISE 

Illustration.  Ames  meets  Bates  on  the  street  and  offers  Bates  his  watch 
for  $10.00.     Bates  takes  the  watch  and  pays  Ames  the  $10.00. 

In  this  case  Ames  and  Bates  are  the  parties;  the  agreement  is  for  the 
exchange  of  property,  and  is  mutual;  the  consideration  is  $10.00;  and  the 
subject  matter  is  Ames'  watch. 

Analyze  the  following  examples  of  common  forms  of  the  con- 
tract relation,  and  select  in  each  example  the  four  necessary 
elements — parties,  mutual  agreement,  consideration,  and  legal 
subject-matter. 

1.  Mrs.  Brown  goes  to  the  Acme  Company  and  purchases  a  sewing 
machine  for  twenty  dollars. 

2.  Black  has  contracted  to  build  a  house  for  Simpson  for  the  sum 
of  $3000. 

3.  Mellen  purchases  a  ticket  from  the  local  agent  of  the  C.  B.  &  Q. 
Railroad  Company  from  Chicago  to  Minneapolis,  paying  the  sum  of  $10.22. 

The  detailed  rules  governing  offer  and  acceptance  are  dis- 
cussed in  a  later  chapter.  For  the  present  we  shall  continue  to 
view  a  contract  as  an  offer  by  one  party  which  has  been  accepted 
by  the  party  to  whom  it  was  made.  We  shall  now  examine  some 
of  the  features  common  to  all  contracts. 

21.  Further  Classification.  Even  though  we  recognize 
an  accepted  offer,  which  creates  a  contract,  we  may  still  know 
little  about  a  contract  unless  we  determine  its 

1.  Validity, 

2.  Solemnity,  or  manner  of  execution, 

3.  Mode  of  expression, 

4.  Time  of  performance, 

5.  Relation  to  each  other  of  parties  on  the  same  side. 
These  will  be  discussed  in  order. 

22.  Validity  of  the  Contract.  Frequently  persons  try  and 
intend  to  make  a  valid  contract  and  fail  in  their  attempt  because 
they  have  neglected  to  comply  with  some  rule  which  they  should 
have  observed.  In  that  event  their  contract  may  be  void, 
voidable,  or  unenforceable. 


14  CONTRACTS 

If  void,  it  has  no  standing  whatever  in  the  eyes  of  the  law, 
and  is  without  effect  of  any  kind  from  the  beginning.  The 
parties  to  it  have  wholly  failed  to  create  any  new  rights,  but 
stand  in  precisely  the  same  position  as  if  they  had  never 
attempted  to  make  a  contract. 

If  voidable,  it  may  be  set  aside  at  the  pleasure  of  one  of  the 
parties  who  exercises  a  right  which  the  other  party  does  not 
have.  A  voidable  contract  may  be  carried  out  if  the  injured 
party  desires  to  do  so;  but  it  is  not  a  valid  contract,  in  the 
proper  sense  of  the  term,  because  one  of  the  parties  may  legally 
refuse  to  carry  out  the  agreement.  If  he  does  refuse,  the  other 
party  is  without  power  to  compel  him  to  perform. 

If  unenforceable,  it  will  not  be  enforced  by  the  courts  if  either 
party  objects.  An  accepted  offer  may  possess  all  the  elements 
of  a  valid  contract,  and  yet  there  may  be  some  statute  applicable 
to  this  particular  case  which  the  makers  have  failed  to  observe, 
and  because  of  this  failure  neither  party  can  compel  the  other 
party  to  perform  his  part  of  the  agreement. 

EXAMPLES 

Void  Contracts.  1.  Poole,  a  dealer  in  lard,  formed  a  scheme  to  "corner 
the  market"  by  securing  control  of  the  supply  of  lard  and  raising  the  price. 
He  employed  Leonard  to  carry  out  the  details  of  the  scheme.  When  Leonard 
sued  Poole  for  his  wages,  the  court  refused  to  allow  him  to  recover.  Such 
contracts  are  designed  to  restrain  trade,  and  are  illegal  and  void.  Leonard 
vs.  Poole,  114  N.  Y.  371. 

Voidable  Contracts.  Smith,  aged  seventeen,  offers  to  buy  a  horse  from 
Morgan  for  $200.  Morgan  accepts  the  offer.  If  Smith  thereafter  refuses  to 
take  the  horse  and  pay  the  money,  Morgan  can  do  nothing.  This  is  because 
Smith  was  not  twenty-one  years  old  when  he  made  the  contract,  and  it  is  a 
rule  of  law  that  persons  under  that  age,  who  are  called  minors,  cannot  be  bound 
by  contracts  against  their  will.  The  contract  in  this  case  is  not  void,  but 
voidable.     If  Smith  desires  to  do  so  he  can  perform  the  contract. 

Unenforceable  Contracts.  Johnson  offers  to  sell  his  farm  to  Mahoney 
for  $5000.  Mahoney  says,  "I  accept,"  but  the  parties  do  nothing  further. 
Contracts  to  sell  real  estate  are  not  enforceable  by  action  unless  some  memo- 
randum is  made  in  writing  signed  by  the  parties.  If  either  party  refuses  to 
perform  his  part  of  the  contract,  the  other  party  cannot  go  into  court  and 
recover  anything  —  the  contract  is  unenforceable. 

23.  Solemnity.  When  persons  desire  to  make  a  contract, 
they  must  first  decide  whether  to  make  (1)  a  contract  under 
seal,  or,  (2)  a  parol,  or  simple  contract. 


CONTRACTS 


15 


A  contract  under  seal  exists  when  the  parties  have  written 
their  agreement  and  placed  opposite  their  signatures  a  seal. 
The  presence  of  this  seal  gives  to  the  contract  a 
formality  which  it  would  not  otherwise  possess. 
This  is  because  the  courts  decided  at  an  early 
time  that  if  the  parties  to  a  contract  chose  to 
perform  this  extra  act,  they  showed  a  delibera- 
tion and  an  intent  that  the  contract  should  be 
enforced  if  possible.  It  was  therefore  said  that 
such  contracts  under  seal  would  be  enforced 
regardless  of  the  presence  or  absence  of  any 
consideration.  The  contract  under  seal  derived 
its  validity  from  the  presence  of  this  seal  alone 
and  not  from  the  presence  of  a  consideration.  Shakespeake's  Seal 

Seals  are  of  ancient  origin;  they  are  mentioned  often  in  the  Bible.*  When 
few  people  were  able  to  write  even  so  much  as  their  own  names,  a  seal  was  used 
instead  of  a  signature.  The  body  of  the  contract  was  written  for  them  by  a 
public  writer,  and  a  drop  of  molten  wax  or  a  thin  plate  of  wax,  called  a  wafer, 
was  placed  at  the  end,  and  the  imprint  of  the  maker's  seal  was  made  upon  it. 
In  order  to  have  the  seal  always  with  him,  ready  for  instant  use,  the  owner  of 
it  often  had  it  engraved  upon  a  ring.  Seals  are  often  indicated  by  a  scroll 
inside  of  which  the  word  "Seal"  is  written  or  typewritten. 

The  necessity  for  seals  has  long  ceased  to  exist,  yet  when 
called  upon  to  determine  the  rights  of  parties  to  a  contract  the 
courts  of  most  states  will  recognize  a  difference  if  the  contract  be 
under  seal.  This  difference  will  be  more  particularly  noted  under 
our  later  discussion  of  Consideration  in  Contracts. 

For  the  present  it  is  sufficient  to  say  that  a  contract  under 
seal  is  the  only  formal,  or  solemn  kind  of  contract  known  to  the 
law,  and  that  its  use  at  present  is  confined  almost  exclusively 
to  contracts  for  the  sale  and  transfer  of  land.  In  such  cases  the 
seals  usually  appear  in  one  of  the  following  forms : 


Name  of  party  to  he  written  here 
or 


SEAL 


Name  of  party  to  he  written  here 


L  S 


*  I   Kings,  Chap.  21.     Daniel,  Chap.  6.     Esther,  Chap.  8.     Jeremiah, 
Chap.  32. 


16.  CONTRACTS 

Contracts  by  parol  (parol,  a  French  word  meaning  "word,  or 
promise")  are  all  contracts  not  made  under  seal.  They  depend 
for  their  validity  upon  the  presence  of  a  legal  consideration. 
They  may  be  by  word  of  mouth  or  in  writing.  It  is  preferable 
to  make  all  contracts  in  writing,  because  thereafter  there  Can  be 
little  opportunity  for  dispute  as  to  the  exact  words  used,  but 
written  parol  contracts  have  no  greater  solemnity  than  oral  ones. 
Throughout  our  treatment  we  shall  designate  parol  contracts 
as  simple  contracts,  because  no  particular  formality  is  necessary 
in  their  execution. 

EXAMPLES 

1.  Crookshank  offered  to  employ  Burrell  to  repair  a  wagon  and  promised 
to  pay  him  $25.  Burrell  accepted  the  offer  and  did  the  work.  The  entire 
agreement  was  verbal.  This  was  a  valid  parol,  or  simple,  contract.  It  was 
also  an  oral  contract.     Crookshank  vs.  Burrell,  18  Johnson  (N.  Y.)  58. 

2.  Shores  offered  to  sell  some  growing  timber  to  Emerson,  who  accepted 
the  offer,  and  the  parties  signed  the  following  writing: 

"This  is  to  certify  that  I  have  sold  the  timber  growth  on  my  fifty-acre 
lot  to  Emerson  for  $85.  Signed  —  C.  D.  Shores, 

Accepted  —  Stephen  Emerson." 
This  was  a  valid  parol,  or  simple,  contract.     It  was  also  a  written  contract. 
Emerson  vs.  Shores,  95  Maine  237. 

24.  Mode  of  Expression.  Contracts  may  be  either  (1)  ex- 
press, or,  (2)  implied. 

An  express  contract  is  one  whose  terms  are  stated  and  agreed 
to  by  the  parties.     It  may  be  either  written  or  spoken. 

An  implied  contract  is  one  whose  terms  are  inferred  from  the 
acts  of  the  parties.  » 

EXAMPLES 

Express  Contracts.  Burr  offers  to  construct  a  woodshed  for  Abrams 
for  $200.  Abrams  accepts  the  offer,  and  Burr  proceeds  with  the  building  of 
the  woodshed.  Abrams  thereupon  becomes  bound  to  pay  Burr  the  agreed 
price. 

This  result  will  follow  regardless  of  whether  the  contract  was  written  or 
entirely  oral.  It  is  a  simple  express  contract,  and  if  Burr  performs  his  part, 
i.e.,  the  construction  of  the  woodshed  according  to  agreement,  then  Abrams 
becomes  liable  to  pay  the  $200,  even  though  it  should  afterwards  develop  that 
the  work  was  only  worth  $125. 

It  is  to  be  noted  in  this  connection  that  in  express  contracts  the  parties 
are  bound  by  the  terms  in  which  they  make  their  offer  and  acceptance. 


CONTRACTS  17 

Implied  Contracts.  1.  Jones,  being  ill,  telephones  Dr.  Brown  to  come 
and  attend  him.  Dr.  Brown  does  so  and  on  Jones'  recovery  sends  him  a  bill 
for  $500  for  services.  Although  no  actual  express  contract  was  made,  Dr. 
Brown  can  collect  this  $500  provided  his  charge  is  a  reasonable  one. 

This  result  follows  because  the  law  implies  a  promise  on  the  part  of  Jones 
to  pay  the  reasonable  value  of  Dr.  Brown's  services,  for  it  was  at  Jones'  request 
that  the  services  were  rendered.  Jones  is  not  held,  however,  to  pay  whatever 
Dr.  Brown  may  choose  to  charge,  but  only  to  pay  a  reasonable  charge.  That 
is  the  only  contract  which  the  law  will  imply. 

2.  Adams,  who  is  going  away  for  the  summer,  calls  across  to  his  neighbor. 
Moore,  and  says,  "You  might  turn  your  hose  on  my  flowers  once  in  a  while, 
Moore,  if  you  feel  like  it."  Moore  does  so,  and  on  Adams'  return  presents  a 
bill  for  $25.  Here  no  contract  will  be  implied,  because  the  whole  transaction 
will  be  viewed  as  a  neighborly  act  for  which  no  pay  was  intended,  or  expected. 
As  there  was  no  express  contract,  and  as  the  law  will  not  imply  a  contract  from 
the  acts  of  the  parties,  Adams  need  not  pay  the  bill. 

The  ordinary  contract  of  a  business  man  is  a  simple,  express 
contract.  It  is  this  kind  of  contract  which  we  call  to  mind  when 
we  speak  of  the  subject,  "Contracts."  Yet  from  the  above 
examples  it  is  to  be  observed  that  it  is  just  and  proper  in  many 
cases  to  have  the  law  imply  a  contract,  even  though  there  may 
have  been  no  verbal  or  written  offer  and  acceptance.  Implied 
contracts  are  not,  however,  the  ordinary  medium  of  business, 
and  exist  only  when  the  acts  of  the  parties  show  strongly 
that  they  must  have  intended  to  create  a  contract.  The  law 
will  imply  such  contracts  only  in  the  interest  of  justice. 

25.  Time  of  Performance.  Contracts  may  be  either  (1) 
executed,  or,  (2),  executory.  They  are  executed,  when  they  are 
completely  performed  and  nothing  remains  to  be  done.  They 
are  executory  when  any  condition  which  either  party  has  agreed 
to  perform  remains  unperformed. 

EXAMPLES 

1 .  Ames  and  Bates  agree  to  exchange  horses.  If  they  make  the  exchange 
immediately,  the  contract  is  executed,  because  everything  is  done  which  each 
party  has,  by  the  contract,  agreed  to  do.  Thereafter  Bates  has  the  horse 
which  originally  belonged  to  Ames.  He  owns  it  and  keeps  it  in  his  stable. 
Ames  has  no  rights  over  it.  And  similarly  with  the  horse  which  Bates  formerly 
owned,  and  which  by  the  contract  has  become  the  property  of  Ames. 

2.  If,  in  the  above  example,  the  parties  agree  to  exchange  horses  the 
Monday  following,  the  contract  will  remain  executory  until  the  time  of  p>er- 
formance,  i.e.,  Monday.  During  the  time  when  the  contract  remains  execu- 
tory, .Ames  keeps  his  own  horse,  and  Bates  keeps  his.     Each  has  acquired 


18  CONTRACTS 

merely  the  right  to  have  the  other's  horse  at  a  later  date,  called  the  time  of 
performance. 

On  account  of  this  difference  in  the  eflfect  of  an  executed  and  an  executory 
contract,  it  is  stated  by  one  of  the  earliest  of  English  law  writers  (2  Black- 
stone's  Commentaries,  443)  that  an  executed  contract  conveys  a  thing  in 
possession  (the  horse,  in  the  first  example  above) ;  while  an  executory  contract 
conveys  a  thing  in  action  (the  right  of  each  to  have  the  other's  horse  at  the  end 
of  the  week,  in  the  second  example  above.) 

The  time  of  performance  of  a  contract  depends  entirely  upon 
the  agreement  of  the  parties.  It  is  important  because  it  deter- 
mines the  time  when  an  executory  contract  should  become 
executed. 

26.  Relation  to  each  other  of  parties  on  same  side.  While  a 
contract  must  from  its  nature  have  two  parties,  there  may  be 
more.  As  many  persons  as  desire  may,  on  the  one  side,  contract 
with  either  a  single  person,  or  a  number  of  persons  on  the  other 
side.  Ames,  Bates,  and  Call  may  contract  with  Dale  to  build 
the  latter's  house.  The  first  three  are  the  parties  of  the  one  side, 
and  Dale  is  the  sole  party  of  the  other  side. 

If  there  are  two  or  more  parties  on  the  same  side  of  a  con- 
tract, that  is,  who  have  contracted  together  on  one  side  of  a 
contract,  a  new  relation  is  created.  They  not  only  have  an 
obligation  which  they  have  agreed  to  perform  as  to  the  party, 
or  parties,  on  the  other  side  of  the  contract,  but  they  have  certain 
rights  and  duties  as  between  themselves.  Their  obligations  may 
be  either  join/,  or  several,  or  joint  and  several. 

A  joint  obligation  exists  when  all  the  parties  on  one  side  of  a 
contract  agree  to  act  as  a  single  person.  Thus  in  cases  in  which 
the  subject  matter  of  the  contract  is  entire,  such  as  a  sum  of 
money  which  is  to  be  paid  to  a  number  of  specified  persons,  it  is 
a  joint  contract  as  to  those  persons.  The  effect  of  a  joint  con- 
tract is  that  no  single  one  of  the  persons  contracting  jointly  can 
sue  alone,  or  be  sued  alone,  for  his  share.  All  joint  contractors 
must  join,  or  be  joined  together,  when  the  contract  is  sought  to  be 
enforced  in  court. 

If,  however,  the  contract  be  to  pay  to  each  person  a  specific 
sum,  or  one  in  which  each  agrees  to  perform  distinct  and  separate 
duties,  the  contract  is  said  to  create  a  several  obligation.  In 
such  a  contract  any  one  of  the  parties  may  sue  or  be  sued  alone 


CONTRACTS  19 

for  his  share.  Such  a  contract  would  exist  in  case  A,  B,  and  C 
agreed  to  pay  $500  to  D,  A  to  pay  $250  of  the  amount,  B  $150, 
and  C  $100. 

When,  in  a  written  contract,  the  words,  "I  promise,"  or  "We, 
or  either  of  us,  promise,"  or  "We  bind  ourselves  and  each  of 
us,"  are  used,  the  obligation  is  joint  and  several  and  any  failure 
to  perform  the  agreement  makes  possible  a  suit  against  all  those 
who  promised  jointly,  or  against  one  or  more  severally.  A  joint 
and  several  obligation  is  the  most  favorable  to  the  person  to 
whom  it  is  made  and  the  most  unfavorable  to  those  who  make  it, 
because  any  one  of  them  may  be  compelled  to  carry  out  the 
whole  agreement.  The  old  common  law  idea  was  that  all  con- 
tracts were  deemed  to  be  joint,  unless  the  parties  specified  that 
they  should  not  be.  This  view  has  been  changed  by  the  statutes 
of  some  states,  so  that  in  them  it  is  presumed  that  all  contracts 
are  joint  and  several,  unless  it  be  shown  that  the  parties  specified 
some  other  relation. 

EXAMPLES 

1.  A  group  of  shareholders  in  a  corporation  agreed  with  Marie  to  transfer 
their  shares  of  stock  to  him  and  accept  in  return  shares  in  a  new  corporation, 
or  a  sum  of  money.  Marie  failed  to  pay  them  for  their  shares  as  agreed, 
and  when  they  sued  him  the  court  said  that  the  obligation  was  joint  and  that 
they  must  all  sue  him  together,  because  he  had  agreed  to  pay  them  all  and  not 
each  one  severally.  The  nature  of  the  arrangement  was  such  that  the  shares 
might  be  without  value  to  him  unless  he  received  all  of  them.  Marie  vs. 
Garrison,   83   N.   Y.    14. 

2.  Four  persons  bought  a  printing  press  for  $1500,  payable  in  four  install- 
ments, each  party  agreeing  to  be  responsible  for  one-fourth  of  the  entire  sum, 
or  for  one  installment.  One  of  them  was  sued  alone  for  his  particular  install- 
ment, and  the  court  said  that  this  was  proper  because  the  obligation  was 
several  and  not  joint,  and  no  one  person  could  be  held  liable  for  more  than  one- 
fourth.     Larkin  vs.  Butterfield,  29  Mich.  254. 

3.  In  the  last  example  above  if  the  four  persons  who  agreed  to  pay  for 
the  printing  press  had  signed  an  agreement  as  follows:  "We,  the  undersigned 
persons,  or  either  of  us,  promise  to  buy,  and  pay  $1500  for  a  printing  press, 
in  four  installments,"  then  any  one  of  them  would  have  been  liable  for  not  only 
a  single  installment,  but  for  the  entire  purchase  price,  and  the  contract  would 
have  been  joint  and  several. 

27.  Effect  of  Death  of  Joint  Contractor.  Upon  the  death  of 
a  person  all  debts  for  which  he  is  individually  liable  "survive" 
against  his  estate,  that,  is,  they  are  payable  out  of  the  property 


20  CONTRACTS 

which  he  owned  at  his  death.  If  the  deceased  was  one  of  two 
or  more  parties  on  the  same  side  of  a  contract,  the  liability 
survives  against  his  estate  if  the  obligation  was  a  several  one,  or 
was  joint  and  several.  If  the  obligation  was  joint,  the  estate 
by  common  law  is  discharged  from  liability,  but  such  cases  are 
rare,  since  the  tendency  of  courts  is  to  regard  all  contracts  where 
there  are  two  or  more  parties  on  one  side  as  joint  and  several. 
Some  states,  notably  Massachusetts,  New  York,  Ohio,  Tennessee, 
and  Wyoming,  have  declared  by  statute  that  even  joint  debts 
survive  against  the  estates  of  deceased  debtors. 


II.  Legally  Incompetent* 


CHAPTER   IV 
COMPETENT   PARTIES 

All  parties  are  competent  except: 

{1.  Insane  Persons 
2.  Intoxicated  Persons 
3.  Spendthrifts 

(1.   Infants 

2.  Married  Women 

3.  Aliens 

4.  Agents  (certain  con- 
tracts only) 

5.  Corporations  (cer- 
tain contracts  only) 

28.  Who  Are  Parties.  Persons  who  create,  or  attempt  to 
create,  new  rights  or  obligations  in  themselves  or  others  by  means 
of  a  contract,  are  the  parties  to  it.  Ordinarily  all  persons  capable 
of  transacting  business  may  make  valid  contracts.  Exceptional 
classes  of  persons,  however,  are  particularly  designated  by  law 
as  being  incapable  of  making  contracts,  and  their  attempts  to  do 
so  result  merely  in  creating  voidable,  and  sometimes  void, 
contracts.  Such  parties  are  said  to  be  incapable  of  making 
mutually  enforceable  contracts,  because  of  disabilities. 

29.  Disabilities.  A  disability  to  create  valid  contracts  may 
exist  for  either  of  two  causes.  These  are  (1)  that  the  party  is 
mentally  incapable,  or  (2)  that  the  party  is  legally  incapable. 

The  affairs  of  such  persons  may  be  placed  in  the  hands  of  a 
guardian   (sometimes  called  a  conservator)  by  order  of  court. 

30.  Mental  Incapability.  If  persons  who  are  mentally 
incapable  of  protecting  their  own  interests,  are  parties  to  con- 
tracts, such  contracts  are  not  enforced  against  them,  but  are 
voidable  at  their  option.  Such  persons  are  those  who  are  (1)  in- 
sane, (2)  habitual  drunkards,  and  (3)  spendthrifts.  The  result 
of  attempts  by  such  persons  to  create  contracts  is  explained 
by  the  examples  under  the  next  section. 

?1 


22  COMPETENT   PARTIES 

31.  Insane  persons.  Insane  is  a  general  term  applicable  to 
any  person  who  is  of  unsound  or  deranged  mind.  It  may 
indicate  absolute  loss  of  reason,  or  partial  lunacy.  The  latter 
condition  is  frequently  caused  by  grief,  sickness  or  accident,  and 
the  mental  capacity  of  the  person  may  be  restored  by  proper 
treatment  or  by  the  lapse  of  time.  Idiot  and  imbecile  are  terms 
applied  to  persons  whose  mental  development  has  been  arrested." 
Insanity  as  a  defense  to  a  contract  must  be  such  that  the  party 
could  not  comprehend  the  force  of  his  act. 

The  eflfect  of  an  attempt  by  insane  persons*  to  create  a  con- 
tract results  only  in  creating  an  apparent  obligation  which  is 
voidable.  Such  contracts  may  be  either  ratified  or  disaffirmed 
by  the  insane  person  on  recovering  his  sanity,  or  by  his  guard- 
ian, but  unless  ratified  cannot  be  enforced  by  the  other  party. 
Two  exceptions  to  this  general  rule  exist.  The  first  exception  is 
that  insane  persons  may  make  valid  contracts  in  their  lucid 
intervals;  the  second,  that  they  may  create  implied  contracts  to 
secure  the  necessaries  of  life. 

If  a  party  to  a  contract  wishes  to  escape  liability  on  the 
ground  that  he  was  insane  when  he  made  it,  he  will  have  to  prove 
his  insanity.'  If  a  person  has  actually  been  declared  insane  by 
the  court,  and  thereafter  attempts  to  make  a  contract,  which 
the  other  party  attempts  to  enforce  against  him,  the  party 
attempting  to  enforce  the  contract  must  prove  to  the  court  that 
the  insane  person  had  a  lucid  interval  when  the  contract  was 
made,  or  ratified. 

It  would  be  unfair  to  insane  persons  to  destroy  their  right  to 
secure  the  necessaries  of  life.  In  such  instances,  the  court  allows 
the  party  who  has  furnished  the  necessaries  to  recover  the 
reasonable  value.  The  party  furnishing  such  articles  to  an 
insane  person  must  show  to  the  court  (1)  that  they  were  neces- 
sary, and  (2)  their  reasonable  value.  He  cannot  recover  what 
the  insane  person  agreed  to  pay,  but  merely  what  a  reasonable 


*  In  regard  to  contracts  with  an  insane  person,  note  the  following  rule, 
which  is  not  applicable  to  contracts  made  with  other  persons  under  disability: 
If  a  party  contracts  with  an  insane  person,  without  knowledge,  or  reasonable 
suspicion  as  to  the  other's  insanity,  the  contract  is  valid  and  not  voidable, 
provided  the  contract  has  been  executed  and  the  parties  cannot  be  restored  to 
their  original  position.  Bollnow  vs.  Roach,  210  111.  364,  71  N.  E.  454.  If 
the  contract  is  executory,  or  the  consideration  can  be  restored,  it  may  be 
avoided  by  the  insane  person,  or  his  guardian. 


COMPETENT   PARTIES  23 

man,  under  all  the  circumstances  of  trade  and  commerce,  would 
consider  they  were  worth.  Furthermore,  if  the  insane  person 
had  a  guardian,  a  party  who  attempts  to  recover  the  value  of 
necessaries  must  also  show  that  the  guardian  had  failed  in  his 
duty  to  provide  them. 

EXAMPLES 

1.  Ames,  a  merchant,  sells  a  piano,  an  automobile,  and  a  barrel  of  flour, 
to  Bates,  who  promises  to  pay  for  these  articles  $400,  $2000,  and  $7,  respec- 
tively. He  fails  to  pay  and  when  Ames  sues  him  he  proves  to  the  court  that 
he  was  insane  when  all  these  sales  were  made.  The  piano  was  worth  $500,  the 
automobile  worth  $2000,  and  the  flour  $6.  Bates  did  not  need  either  the  piano 
or  the  automobile.     Ames  may  recover  only  $6  for  the  flour. 

2.  A,  a  merchant,  sold  goods  to  B,  which  were  suitable  to  his  needs  and 
his  station  in  life,  after  B  had  been  legally  declared  insane  and  C  had  been 
appointed  his  guardian.  C  was  in  Europe  at  the  time,  and  had  failed  to  make 
provision  for  B.  On  C's  return  he  refused  to  pay  for  them,  and  A  sued  him. 
The  court  said  that  he  must  pay  the  fair  value  of  the  goods  out  of  B's  money, 
which  he  held.     Fitzgerald  vs.  Ree,  9  S&M  (Miss.)  94. 

3.  The  question  in  all  cases  in  which  incapacity  to  contract  because  of 
defect  of  mind  is  set  up  in  defense,  is,  not  whether  a  person's  mind  is  generally 
impaired  nor  whether  he  is  afflicted  by  any  form  of  insanity,  but  whether  the 
powers  of  his  mind  have  been  so  affected  by  his  disease  as  to  render  him  incap- 
able of  transacting  business  like  that  in  question.  Dennett  vs.  Dennett, 
44  N.  H.  531. 

32.  Intoxicated  persons.  Slight  intoxication  of  one  of  the 
parties  to  a  contract  has  no  effect  on  the  validity  of  the  contract, 
but  if  a  party  is  so  completely  intoxicated  at  the  time  of  making 
a  contract  that  he  could  not  act  intelligently,  or  was  incapable 
of  knowing  what  he  was  doing,  the  contract  is  voidable.  It  is 
extremely  difficult  for  a  person  to  escape  his  contract  on  this 
ground,  unless  he  can  prove  that  the  other  party  took  advantage 
of  his  condition. 

EXAMPLE 

Van  Wyck  sold  his  farm  to  Brasher  for  a  fair  price,  having  been  attempt- 
ing for  a  long  time  to  sell  it  to  others.  Later  he  attempted  to  recover  the  farm, 
and  offered  to  return  the  money,  showing  that  he  had  been  drinking  heavily 
the  day  he  sold  it.  Brasher  showed  that  Van  Wyck's  real  reason  for  wishing 
to  recover  the  farm  was  that  he  had  an  opportunity  to  sell  it  to  someone  else 
at  a  higher  price,  land  values  having  increased  after  the  sale.  The  court 
refused  to  return  the  farm  to  Van  Wyck,  and  said  there  was  no  proof  that 
Brasher  had  taken  advantage  of  him.     Van  Wyck  vs.  Brasher,  81  N.  Y.  260. 


24  COMPETENT   PARTIES 

Habitual  drunkards  may  be  placed  in  the  care  of  guardians 
appointed  by  the  court,  and  in  that  event  the  duties  of  the 
guardian,  and  the  rights  of  third  persons  furnishing  necessaries, 
are  the  same  as  in  the  case  of  insane  persons. 

33.  Spendthrifts.  A  guardian  may  also  be  appointed  to  care 
for  the  business  affairs  of  a  person  who  is  so  dissolute  in  his 
habits,  or  so  lacking  in  judgment*  as  to  be  incapable  of  properly 
caring  for  his  own  property.  Such  a  person  is  called  a  spend- 
thrift. If  a  guardian  is  appointed,  his  duty,  and  that  of  third 
persons  furnishing  necessaries,  is  the  same  as  that  of  a  guardian 
of  an  insane  person.  The  right  to  appoint  a  guardian  for  a 
spendthrift  depends  upon  the  statutes  of  the  different  states. 

34.  Legal  Incapacity.  Certain  types  of  persons  are  speci- 
fically designated  by  the  law  as  incapable  of  making  valid  con- 
tracts. In  some  instances,  they  are  totally  prohibited  from 
contracting,  and  in  other  instances  they  are  allowed  to  contract, 
under  certain  conditions,  and  subject  to  certain  limitations. 
Persons  whom  the  law  declares  to  be  either  totally  or  partially 
incapable  of  making  contracts  are  (1)  infants,  (2)  married  women, 
(3)  aliens,  (4)  agents,  and  (5)  corporations.  Particular  rules, 
which  are  discussed  in  the  following  paragraphs,  exist  for  each 
class. 

35.  Infants.  An  infant  is  a  person  who  has  not  reached  a 
legal  age,  which  is  the  age  fixed  by  law  as  that  at  which  he  should 
have  arrived  at  years  of  discretion,  and  be  capable  of  safeguarding 
his  own  affairs.  At  common  law  this  age  is  twenty-one  years 
for  both  sexes,  but  by  statutes  in  many  states  the  legal  age  for 
women  is  reduced  to  eighteen  years. f 

36.  Voidable  Contracts  of  Infants.  The  general  rule  is 
that  an  infant  is  not  competent  to  bind  himself  by  contract, 
except  for  necessaries,  and  that  he  may  avoid  any  contract  made 

*  Aged  persons  frequently  lose  their  mental  faculties  and  became  incapable 
of  caring  for  their  own  property.  In  such  cases,  a  guardian  may  be  appointed 
for  them,  with  the  same  effect  as  in  the  case  of  spendthrifts. 

t  Alabama,  Arkansas,  Colorado,  Connecticut,  Delaware,  Georgia,  Illinois 
Indiana,  Iowa,  Michigan,  Minnesota,  Montana,  Mississippi,  Maine,  Maryland, 
New  Jersey,  New  York,  New  Hampshire,  Nebraska,  Ohio,  Nevada,  Okla- 
homa, Oregon,  Rhode  Island,  South  Carolina,  North  Carolina,  Texas,  Utah, 
Wyoming,  Wisconsin.  Washington. 


COMPETENT   PARTIES  25 

by  him  during  infancy.  This  is  true  even  though  he  may  have 
been  self-supporting  and  living  apart  from  his  parents.  It  is 
to  be  observed  that  the  infant  is  the  party  whom  this  rule  of  law 
seeks  to  protect  and  therefore  the  defense  of  infancy  is  open  to 
him  alone  and  not  to  the  other  party  with  whom  he  contracted. 
It  is  therefore  said  that  the  contracts  of  an  infant  are  voidable 
"at  his  election,"  and  may  be  ratified  or  disaffirmed  by  him. 

When  Necessary  to  Ratify.  If  a  contract  made  by  an 
infant  is  executory,  or  unperformed,  when  the  infant  attains  his 
majority,  it  is  void  unless  ratified  by  him  at  that  time  or  within 
a  reasonable  time  thereafter.  Failure  to  disaffirm  will  not  be 
sufficient;  there  must  be  a  positive  ratification. 

When  Necessary  to  Disaffirm.  If  a  contract  made  by  an 
infant  is  executed,  it  is  necessary  for  the  infant  to  disaffirm  it, 
at  the  time  of  reaching  his  majority  or  within  a  reasonable  time 
thereafter,  if  he  wishes  to  avoid  it.  Failure  to  ratify  will  not  be 
sufficient;  there  must  be  an  express  disaffirmance.  Until  such 
disaffirmance  the  contract  has  a  prima  facie  validity. 

EXAMPLES 

1.  Clemmer,  19  years  of  age,  executed  a  contract  which  he  had  previously 
made,  by  paying  Price  $2,000  for  his  farm.  Clemmer  took  possession  of  the 
farm,  but  five  years  later  offered  to  return  it  and  demanded  that  Price  repay 
the  $2,000.  The  facts  were  presented  to  a  court  which  ruled  that  as  the 
contract  was  executed  and  had  not  been  expressly  disaffirmed  within  a  reason- 
able time  after  Clemmer  became  21  years  of  age,  it  could  not  be  set  aside,  but 
was  binding  between  the  parties.     Clemmer  vs.  Price,  125  S.  W.  (Tex.)  604. 

2.  Morton,  an  infant  aged  20  years,  promised  in  writing  to  pay  Steward 
■  $90  for  a  horse  two  years  later.     Nothing  further  was  done  until  the  two  years 

had  elapsed,  when  Steward  offered  to  deliver  the  horse  and  demanded  the  $90, 
which  Morton  refused  to  pay  on  the  ground  of  his  infancy  at  the  time  the  con- 
tract was  made.  The  court  ruled  that  this  was  a  good  defense  as  there  had 
been  no  ratification  and  express  disaffirmance  was  not  necessary  to  avoid 
executory  contracts  of  infants.     Morton  vs.  Steward,  5  111.  App.  533. 

If  an  infant  disaffirms  an  executed  contract  within  a  rea- 
sonable time  after  attaining  his  majority,  he  cannot  ordinarily 
recover  his  property  or  goods  without  first  restoring  the  property 
or  goods  which  he  may  have  received  from  the  other  party.  If 
he  no  longer  has  these  goods  he  must  in  some  instances  pay  the 
other  party  their  value,  though  the  courts  are  by  no  means 
uniform  in  the  several  states  in  applying  these  rules. 


26  COMPETENT  PARTIES 

If  an  infant  desires  to  ratify  an  executory  contract  on  attain- 
ing his  majority,  he  must  ratify  the  whole  contract,  and  hot 
merely  a  part.  Thereafter  his  liability  is  treated  as  complete 
and  binding  from  the  beginning. 

EXAMPLES 

1.  Bardwell,  an  infant,  contracted  with  Wallis  who  agreed  to  build  an 
addition  to  the  infant's  house,  for  which  the  infant  promised  to  pay  a  stated 
sum.  Later  the  infant  refused  to  pay  for  the  work,  and  the  court  said  that 
this  work  (which  was  the  building  of  a  new  f)orch)  was  not  necessary,  and 
allowed  no  recovery.  Wallis  vs.  Bardwell,  126  Mass.  366;  Bloomer  vs. 
Nolan.  36  Neb.  51. 

2.  A,  an  infant,  needed  money  to  complete  his  education,  and  sold  his 
house  to  B,  who  paid  a  fair  price.  After  A  reached  legal  age  he  found  he  could 
then  sell  the  house  for  a  larger  price  and  notified  B  to  give  it  back  to  him, 
offering  to  return  the  price  B  had  paid.  This  B  refused  to  do,  but  A  neverthe- 
less proceeded  to  sell  the  house  to  C,  who  sued  B.  The  court  gave  C  the  house, 
saying  that  A  had  exercised  his  right  of  election  promptly.  Shipley  vs.  Bunn, 
125  Mo.  445;  Dixon  vs.  Merritt,  21  Minn.  196. 

3.  Young,  an  infant,  purchased  land  from  Potter  and  paid  the  agreed 
price.  He  then  contracted  to  sell  the  same  land  to  Carrell,  who  promised  to 
pay  him  $250.  After  arriving  at  legal  age,  the  infant  continued  to  keep  the 
land  and  refused  to  convey  it  to  Carrell  or  to  accept  the  purchase  money. 
Carrell  sued  him,  but  the  court  allowed  the  infant  to  keep  the  house,  since  he 
had  made  no  act  of  affirmance  after  reaching  twenty-one.  Carrell  vs.  Potter 
and  Young,  23  Mich.  377. 

37.  Infants'  liability  for  necessaries.  An  infant,  however, 
owes  the  same  duty  to  pay  the  reasonable  value  for  the  neces- 
saries of  life  which  he  has  received,  as  exists  in  the  case  of  insane 
persons.  It  is  necessary  for  a  person  who  sues  an  infant  for  the 
value  of  necessaries  to  show  to  the  court  that  the  articles  were 
actually  necessary  in  the  light  of  all  the  circumstances  of  the 
case.  What  may  be  a  necessary  to  one  person  may  be  a  luxury 
to  another.  If  it  can  be  shown  that  the  articles  furnished  an 
infant  were  actually  necessary,  the  person  furnishing  them  may 
collect  the  reasonable  value,  but  not  the  price  which  the  infant 
promised  to  pay,  if  this  was  more  than  the  reasonable  value.* 

*  The  student  should  here  note,  however,  that  a  person  suing  an  infant, 
even  though  he  may  be  able  to  recover  a  judgment  for  the  value  of  the  neces- 
saries, may  be  unable  to  collect  any  money,  because  the  infant  may  own  no 
property.  In  such  cases  the  judgment  is  without  money  value  until  the  infant 
acquires  property  of  his  own. 


COMPETENT   PARTIES  27 

EXAMPLE 

Archer,  an  infant,  receives  from  Jones,  a  grocer,  some  potatoes  for  which 
he  promises  to  pay  $2.00.  Archer  is  living  alone  at  the  time  and  uses  the 
potatoes  for  his  meals.  The  potatoes  are  actually  worth  only  $1.50.  In  a 
suit  against  Archer,  Jones  can  recover  only  $1.50. 

Jewelry,  walking-canes,  liquor,  tobacco,  bicycles,  a  saddle  and  bridle, 
in  certain  cases  have  been  declared  by  courts  to  be  unnecessaries,  in  the  light 
of  the  particular  facts.  Under  other  facts,  including  the  infant's  station  in 
life,  a  watch,  wedding  clothes,  school  books,  a  microscope,  dental  service,  and 
room-rent,  and  in  some  cases  even  some  of  the  articles  enumerated  in  the 
preceding  sentence  have  been  declared  to  be  things  for  which  the  infant  should 
be  compelled  to  pay  the  reasonable  value,  being  necessaries. 

38*  Married  women.  Married  women  now  generally  have 
the  same  rights  to  make  contracts  in  their  own  name,  to  hold  real 
and  personal  property,  and  the  use  their  earnings,  as  they  had 
before  marriage.*  A  married  woman  may  also  make  contracts 
by  which  she  may  bind  her  husband  to  pay  for  necessaries,  but 
not  other  articles,  unless  she  is  acting  as  his  agent,  in  which  case 
she  is  subject  to  the  same  limitations  as  other  agents.  (See 
section  on  agency.) 

At  common  law  a  married  woman  was  not  capable  of  making  a  valid  con- 
tract, and  was  therefore  not  liable  on  any  contract  which  she  might  make; 
neither  could  she  enforce  it.  The  common  law  idea  was  that  when  a  woman 
married,  all  her  property,  rights,  and  even  her  separate  existence  became 
bound  up,  and  merged,  with  that  of  her  husband,  who  alone  was  deemed 
capable  of  engaging  in  business.  The  contracts  of  married  women  were 
absolutely  void,  and  not  merely  voidable  as  in  the  case  of  infants.  This  harsh 
view  has  been  changed  by  statutes  in  the  various  states,  so  that  little  is  left 
of  the  old  rules. 

39.  Aliens  and  Alien  Enemies.  A  contract  made  with  an 
enemy  in  time  of  war  is  illegal  and  void,  both  at  common  law  and 
under  many  state  statutes.  This  principle  was  applied  to  many 
contracts  made  during  the  Civil  War. 

There  are  laws  in  many  of  the  states  restricting  aliens'  prop- 
erty rights,  t  These  serve  as  a  restriction  on  their  power  to 
acquire  many  property  rights  by  contract,  or  otherwise. 

*  Women  under  legal  age,  though  married,  may^avail  themselves  of  the 
defense  of  infancy,  unless  living  in  a  state  whose  statute  specifically  declares 
them  of  age  at  marriage.     Such  states  are:    Iowa,  Oregon,  Washington. 

t  Aliens  have  the  same  property  rights  as  do  citizens  in  Alabama,  Colorado, 
Indiana,  Iowa,  Maryland,  Massachusetts,  New  Jersey,  Alaska,  Florida, 
Georgia,  Maine,  Michigan,  New  Mexico,  North  Carolina,  North  Dakota, 
Ohio,  Oregon,  Rhode  Island,  South  Dakota,  Tennessee,  Utah,  Wyoming. 


28  COMPETENT  PARTIES 

40.  Agents.  An  agent  is  one  who  acts  for  another,  in  mak- 
ing such  contracts  as  he  has  been  authorized  to  make.  He  is 
not  personally  liable  for  his  acts  if  he  makes  only  such  contracts 
as  he  was  authorized  to  make,  and  he  binds  only  the  person  who  so 
authorized  him  (called  the  principal).     (See  chapter  on  agency.) 

41.  Corporations.  A  corporation  is  a  form  of  business 
organization  which  may  act  in  many  ways  like  a  natural  person. 
It  may  only  perform  such  acts,  however,  as  it  is  specifically 
empowered  to  do  by  statute,  and  then  only  in  the  particular 
manner  which  the  statute  permits.  A  complete  treatment  of 
this  subject  is  presented  in  the  chapter  on  Corporations. 

PRACTICAL   SUGGESTIONS 

Don't  contract  with  persons  whom  you  fear  to  be  mentally  or  legally 
incompetent,  because  you  do  so  at  your  peril. 

Don't  sell  goods  to  married  women  and  charge  the  items  to  their  husbands 
unless  you  are  certain  the  goods  are  necessaries,  or  know  the  husband  will 
pay  regardless  of  his  legal  rights,  because  you  cannot  make  him.  The  hus- 
band's consent  is  sometimes  easier  to  get  before  the  sale,  than  after. 

^void  selling  any  goods  on  credit  to  infants  except  necessaries,  unless  you 
are  willing  to  rely  upon  the  good  nature  of  the  parents  to  pay  their  children's 
bills,  because  you  create  a  contract  which  is  binding  on  you  alone. 

It  is  improvident  to  buy  real  estate  from  an  incompetent  person,  without 
a  court  order,  because  if  the  value  goes  up  he  may  want  it  back,  and  can  get  it. 

Don't,  if  in  spite  of  this  advice,  you  feel  that  you  must  do  business  with  an 
incompetent  person,  take  any  advantage  of  his  condition,  because  the  court 
will  protect  him  and  censure  you. 

Don't  sue  incompetent  persons  without  consulting  your  lawyer,  because, 
even  though  they  may  be  legally  liable,  you  can  sue  them  only  by  following 
a  complicated  legal  procedure. 

Don't  make  verbal  contracts  when  you  could  as  well  make  written  ones.  There 
is  less  opportunity  for  dispute  later. 

REVIEW   QUESTIONS 

1.  Sands,  a  dealer  in  butter  and  cheese,  entered  into  a  written  contract 
whereby  he  agreed  to  employ  Potter  for  three  years  and  in  addition  to  paying 
him  wages,  agreed  to  give  him  a  share  in  the  profits.  At  the  end  of  three  years 
he  paid  the  wages,  but  refused  to  pay  the  one-half  of  the  profits.  Potter  sued 
Sands,  who  defended  on  the  ground  that  he  was  insane  when  he  made  the  con- 
tract. The  court  declared  that  Sands  at  the  time  he  made  the  contract,  was 
insane,  but  that  "he  was  then  possessed  of  mind,  memory,  and  senses  sufficient 
to  know  and  comprehend  the  scope,  force,  and  effect  of  the  particular  contract." 
Can  Sane ;  escape  from  paying  Potter  a  share  of  the  profits?     Why? 


COMPETENT  PARTIES  29 

2.  Wanamaker  sued  Weaver  for  the  purchase  price  of  a  dress  which  he 
had  sold  to  Mrs.  Weaver.  This  was  the  first  time  the  Weavers  had  ever  pur- 
chased anything  of  Wanamaker.  It  was  admitted  that  dresses  were  ordinarily- 
necessary  articles,  but  Weaver  showed  to  the  court  that  his  wife  had  more 
dresses  than  she  needed  before  she  made  this  purchase.  Can  Wanamaker 
recover  the  price  of  the  dress  from  Weaver?  from  Mrs.  Weaver?     Why? 

3.  Jonas,  a  real  estate  dealer,  was  particularly  acute  In  business  when 
intoxicated.  One  day  when  he  was  so  intoxicated  that  no  one  believed  he 
knew  what  he  was  doing,  Baldwin,  believing  he  could  take  advantage  of  Jonas 
in  this  condition  agreed  to  buy  Jonas'  farm  for  $9000.  This  was  really  $3000 
more  than  it  was  worth,  though  Baldwin  did  not  know  It.  Later  he  discovered 
this  fact  and  refused  to  take  the  farm  on  the  ground  that  Jonas  was  so  Intoxi- 
cated at  the  time  he  made  the  contract  that  he  did  not  know  what  he  was 
doing.  Was  there  a  contract?  Why?  Can  Jonas  make  Baldwin  take  the 
farm?     Why? 

4.  Mahoney,  who  claimed  to  be  Christopher  Columbus  whenever  he  saw 
a  ship,  and  Simpson,  who  believed  himself  to  be  married  although  he  was  not, 
were  both  conducting  real  estate  business.  Aside  from  these  peculiarities, 
each  was  looked  upon  as  a  sound  business  man.  Mahoney  agreed  in  writing 
to  sell  Simpson  a  house  for  $5000,  which  Simpson  agreed  to  buy.  Later 
Mahoney  discovered  that  the  value  had  advanced  and  refused  to  carry  out 
the  contract.  Was  there  a  contract?  Why?  '  Has  Mahoney  a  good  defense? 
Why? 

5.  Jacob  Schneider,  an  infant,  bought  some  shoes  of  Bule,  a  dealer,  for 
which  he  promised  to  pay  two  dollars.  A  year  later  he  became  of  age,  and  on 
being  asked  to  pay  by  Bule,  stated  that  he  considered  his  obligation  binding 
on  him  and  would  pay  shortly.  Later  he  refused  to  pay  altogether  and  was 
sued  by  Bule.  The  reasonable  value  of  the  shoes  was  one  dollar  and  twenty- 
five  cents.     What  amount,  if  any,  can  Bule  recover?     Why? 


CHAPTER  V 


THE  AGREEMENT 


.1.  Real 

I.  Common  Inten- 
tion to  Cre- 
ate Contract  12.  Unreal^ 

II.  Offer 


a.  Mistake 

b .  Fraud 

c.  Duress 

d.  Undue  Influence 


III.  Acceptance 

42.  Mutuality.  There  can  be  no  contract  in  the  true  sense, 
as  distinguished  from  an  impHed  contract,  unless  there  is  an 
accepted  offer.  At  the  moment  the  offer  of  one  party  is  accepted 
by  the  party  to  whom  it  is  made,  there  is  a  meeting  of  the  mind^ 
of  the  parties.  This  meeting  of  the  minds  is  called  muliui'. 
assent,  and  the  presence  or  absence  of  this  mutual  assent  deter- 
mines whether  or  not  an  agreement  exists. 

43.  Agreement.  Its  Essentials.  An  agreement,  therefore, 
exists  when  two  or  more  parties  assent  to  be  bound  by  a  contract. 
Its  essentials  are: 

1.  A  common  intention' to  create  a  contract; 

2.  A  communicated  offer; 

3.  An  unqualified  acceptance. 

The  conception  of  a  contract  as  an  accepted  oflFer  makes  it  necessary  that 
there  be  at  least  two  parties.  A  person  cannot  enter  into  an  agreement  with 
himself  so  as  to  create  this  legal  relation,  called  contract.  He  may  make  as 
many  New  Year  resolutions  as  he  likes,  but  these  are  not  contracts,  because 

the  law  will  not  enforce  them. 

»• 

44.  A  common  intention  to  create  a  contract.  Not  only 
must  there  be  at  least  two  parties,  but  these  parties  must  have  a 
common  intention  to  enter  into  the  contract  relation.  Even 
though  the  offer  be  formal  and  complete,  it  cannot  be  the  foun- 
dation of  an  agreement  if  it  was  made  and  accepted  with  no 
intention  to  create  a  contract  but  as  a  mere  jest  or  joke. 

30 


THE   AGREEMENT  31 

EXAMPLE 
Holderman  wrote  out  a  bank  check  for  $300.00  and  gave  it  to  Kellar  in 
payment  for  Kellar's  watch,  worth  $15.00.  It  was  proved  that  the  whole 
transaction  was  carried  on  in  sport.  This  did  not  create  an  agreement,  and 
Holderman  could  not  keep  Kellar's  watch,  nor  could  Kellar  collect  the  $300.00. 
Kellar  vs.  Holderman,  11  Mich.  248. 


OFFER 


1 .  Unconditional 


{a.  As  to  Time  of  Acceptance 
b.  As  to  Place  of  Acceptance 
c.  As  to  Manner  of  Acceptance 

45.  A  communicated  offer.  Not  only  must  there  be  two 
or  more  parties  with  a  common  intention  to  create  the  contract 
relation,  but  one  of  the  parties  must  communicate  to  the  other  a 
definite  offer.  The  party  making  the  offer  is  called  the  offeror; 
the  party  to  whom  it  is  made  is  called  the  offeree.  The  offer 
made  by  the  offeror  consists  of  some  statement,  or  some  act,  by 
which  he  indicates  to  the  other  party,  the  offeree,  three  things. 
These  are:  (1)  the  offeror's  desire  to  create  a  contract,  (2)  the 
terms  of  the  contract  which  he  is  willing  to  make,  and  (3)  the 
manner  in  which  he  desires  his  offer  to  be  accepted.  In  other 
words,  an  offer  is  the  expression  by  one  party,  who  desires  to 
create  a  contract,  of  the  terms  by  which  he  is  willing  to  be  bound. 


¥ 


EXAMPLES 


1.  Compton  said  to  Stagg,  "I  mean  to  sell  this  property  if  I  can  get 
$100.00  for  it."  Stagg  replied,  "I  will  give  you  $100.00  now."  This  did  not 
create  a  contract,  because  Compton's  statement  showed  no  present  desire  to 
create  the  contract  relation.  ~   Compton  vs.  Stagg,  81  Ind.  171. 

2.  Paige's  wife  was  in  a  burning  building,  and  Paige  called  out  to  a  crowd 
of  men  standing  nearby,  "I  will  give  $1000.00  to  anyone  who  will  bring  out 
my  wife's  body."  Reif,  a  fireman,  at  the  risk  of  his  life  brought  out  the  body, 
thereby  complying  with  the  terms  of  the  offer.  This  created  a  contract,  and 
Paige  was  bound  to  pay  the  $1000.00.     Reif  vs.  Paige,  55  Wis.  496. 

3.  A  steel  mill  offered  to  sell  a  railroad  5000  tons  of  iron  rails  at  a  certain 
price,  providing  in  the  offer,  "if  accepted,  we  shall  expect  to  be  notified  by 
December  20."  This  constituted  a  condition  which  the  offeror  imposed  on  the 
offeree,  i.e.,  acceptance  within  a  specified  time.  Minneapolis  &  St.  Louis 
Railway  Company  vs.  Columbus  Rolling  Mill,  119  U.  S.  149. 


32  THE   AGREEMENT 

46.  Offer  May  Be  Conditional.  Not  only  may  the  offeror 
make  his  offer  in  a  variety  of  forms,  but  he  may  attach  as  many 
conditions  as  he  pleases.  He  may  limit  the  means,  the  manner, 
and  the  place  of  acceptance,  provided  the  offer  does  not  thereby 
become  so  uncertain  as  to  be  meaningless.  When  a  conditional 
offer  is  made,  the  person  to  whom  it  is  communicated  can  accept 
it  so  as  to  create  a  contract,  only  by  complying  with  all  the 
conditions  contained  in  the  offer.  The  most  usual  conditions 
attached  to  offers  are  that  they  be  accepted,  if  at  all,  within  a 
given  time;  or  in  a  given  manner,  as  by  mail,  telegraph,  or  tele- 
phone; or  at  a  given  place,  as  Chicago,  New  York,  St.  Louis. 

ACCEPTANCE 

ri.   An  Act 
(1.   Form< 

(2.   A  Promise 

II.   Quality — Unconditional 


III .    Communi- 
cation 


1.  Before  Revocation  of  offer 
a.    By  Notice 

2.  After  Revoca- 
tion of  offer 


By  Lapse  of 
Time 

By  Operation 
of  Law 

47.  Acceptance  of  Offer.  An  offer  is  without  legal  effect, 
and  may  be  withdrawn  at  any  time  before  th6  person  to  whom  it 
is  made,  the  offeree,  has  accepted  it.  Acceptance  is  therefore 
the  assent  of  the  offeree  to  the  offer  of  the  offeror.  Acceptance 
may  be  made  either  (1)  by  a  promise,  or  (2)  by  an  act. 

EXAMPLES 

Acceptance  by  a  promise.  A  water  company  offered  to  extend  certain 
water  mains  if  a  lumber  company  would  agree  to  pay  $250.00  a  year  for  ten 
years.  The  lumber  company  promised  to  make  the  payments.  Muscatine 
Water  Company  vs.  Muscatine  Lumber  Company,  85  Iowa  112. 

Acceptance  by  act.  1.  "Graff  and  a  number  of  other  persons  together 
signed  a  subscription  paper  in  which  they  offered  to  pay  a  total  sum  of 
$10,000.00  to  a  designated  railroad,  provided  trains  were  running  by  October 
1,  1864.  The  railroad  had  trains  running  on  that  date.  Des  Moines  Valley 
R.  R.  Company  vs.  Graff,  27  Iowa  99. 

2.  Cooper  sent  a  quantity  of  leather  to  Orme,  without  request,  and  then 
wrote  Orme  offering  to  allow  him  to  keep  it  at  20  cents  a  pound,  or  to  take  it 


THE   AGREEMENT  S3 

back  and  pay  the  freight.  Orme  did  not  answer  the  letter,  but  used  the 
leather.  The  court  decided  that  this  act  by  Orme  constituted  an  acceptance  of 
Cooper's  offer.  The  act  in  this  case  in  reality  consisted  in  Orme's  taking 
the  benefit  after  he  knew  that  Cooper  expected  to  be  paid.  Orme  vs.  Cooper, 
1  Ind.  App.  449. 

48.  Sufficiency  of  Acceptance.  To  create  a  contract,  the 
acceptance  must  further 

1.  Comply  with  the  conditions  of  the  offer, 

2.  Be  itself  unconditional,  and, 

3.  Be  communicated  to  the  offeror. 

These  elements  of  the  sufficiency  of  an  acceptance  are  illustrated 
in  the  following  examples; 

Compliance  with  conditions  of  offer.  1.  A  railway  company  wrote 
Lawrence  offering  to  carry  a  certain  quantity  of  logs  for  him  at  a  certain  rate, 
on  condition  that  he  would  provide  chains  for  the  logs  if  necessary.  Lawrence 
wrote  back,  "I  accept  your  offer,"  saying  nothing  about  chaining  the  logs. 
The  court  decided  that  by  this  general  acceptance  Lawrence  agreed  to  comply 
with  all  the  conditions  of  the  offer;  that  a  contract  existed  by  which  the  rail- 
road was  compelled  to  carry  his  logs  for  the  price;  and  that  Lawrence  was 
compelled  to  provide  chains.  Lawrence  vs.  Milwaukee,  Lake  Shore  & 
Western  Railway  Company,  84  Wis.  427. 

2.  Snedaker  posted  a  notice  offering  to  pay  §500.00  "to  any  person  who 
will  give  such  information  as  shall  lead  to  the  apprehension  and  conviction" 
of  a  certain  murderer.  Fitch  performed  the  act  of  giving  the  information 
necessary  to  convict  the  murderer,  but  at  the  time  knew  nothing  of  the  offer. 
The  court  decided  that  no  contract  was  created.  Even  though  onS  complies 
with  the  terms  of  an  offer,  one  cannot  thereby  accept  an  offer  of  which  one  is 
ignorant.     Snedaker  vs.  Fitch,  38  N.  Y.  248. 

Acceptance  must  be  unconditional.  I.  Brown  wrote  to  Hough  offering 
to  transport  Hough's  freight  from  Chicago  to  New  York  by  way  of  Boston 
for  ten  dollars  a  ton.  Hough  replied,  "I  accept  your  offer,  with  the  under- 
standing that  if  we  ship  direct  to  New  York  and  not  by  way  of  Boston,  you  will 
charge  us  only  nine  dollars."  This  acceptance  failed  to  create  a  contract. 
Hough  vs.  Brown,  19  N.  Y.  111. 

2.  McCotter  offered  to  sell  to  the  city  of  New  York  all  the  land  which  he 
controlled  on  Ward's  Island  for  a  certain  price  per  acre.  The  city  council 
of  New  York  passed  a  resolution  by  which  it  agreed  to  buy  all  of  Ward's  Island 
for  the  price  per  acre  contained  in  McCotter's  offer,  and  sent  McCotter  a  copy 
of  the  resolution.  The  court  decided  that  this  varied  the  terms  of  the  offer  by 
imposing  new  conditions  and  failed  to  create  a  contract.  McCotter  vs. 
Mayor,  etc.,  of  New  York,  37  N.  Y.  325. 

Acceptance  must  be  communicated  to  offeror.  Harv^ey  made  Maclay 
an  offer,  and  Maclay  wrote  out  an  acceptance  which  he  gave  to  a  messenfi-er 


34  THE  AGREEMENT 

boy  to  take  to  the  post-office.     The  messenger  lost  the  letter  of  acceptance. 
No  contract  resulted  from  this  act.     Maclay  vs.  Harvey,  90  111.  525. 

49.  Communication  of  Acceptance.  The  offeror  may  desig- 
nate the  particular  means  by  which  he  wishes  acceptance  to  reach 
him,  and  if  he  does  this  an  acceptance  communicated  in  the 
manner  specified  is  always  sufficient.  If  no  means  of  communi- 
cation of  acceptance  be  designated  by  the  offeror,  an  acceptance 
by  the  same  medium  as  that  used  by  the  offeror  is  always  suffi- 
cient. In  such  cases  the  risk  of  the  acceptance  actually  being 
received  is  upon  the  offeror,  and  the  contract  is  made  upon  the 
delivery  of  the  acceptance  to  the  agency  of  communication 
selected,  such  as  the  government  mail,  the  telegraph  company, 
or  the  messenger  who  delivered  the  offer. 

If  the  offeree  communicates  his  acceptance  through  a  medium 
other  than  that  designated,  or  if  in  the  absence  of  a  designated 
medium,  the  offeree  accepts  through  a  medium  not  used  by  the 
offeror,  the  acceptance  has  no  effect  until  it  actually  reaches  the 
offeror,  and  even  then  can  be  refused  if  it  does  not  reach  him 
within  a  reasonable  time. 

EXAMPLES 

1.  Kempner  at  Hot  Springs  mailed  to  Cohn  at  Little  Rock  an  offer  to  sell 
his  house  for  $10,000.00.  Cohn  immediately,  and  on  February  7,  mailed  a 
letter  of  acceptance,  which  because  of  the  fault  of  the  post-office  department 
did  not  reach  Kempner  until  February  10.  In  the  meantime  and  on  February 
9,  Kempner  wrote  Cohn  withdrawing  the  offer.  The  Court  decided  that  there 
was  a  valid  contract  between  the  parties,  created  on  February  7.  Kempner 
vs.  Cohn,  47  Ark.  519. 

2.  Wood  made  Callaghan  an  offer  by  letter.  He  failed  to  receive 
Callaghan's  acceptance  of  his  offer,  and  claimed  that  no  contract  ever  existed 
between  them.  Callaghan  proved  that  he  had  deposited  a  letter  of  acceptance, 
proper  in  form,  in  a  street  letter-box.  That  was  held  by  the  court  to  be  suffi- 
cient, the  previous  correspondence  between  the  parties  having  been  by  mail. 
Wood  vs.  Callaghan,  61  Mich.  402. 

If,  however,  the  letter  is  not  properly  addressed  (Potts  vs.  Whitehead, 
20  N.  J.  Eq.  55),  or  is  not  stamped  (Blake  vs.  Hamburg-Bremen  Fire  Insurance 
Company,  67  Tex.  160),  no  contract  results  unless  the  acceptance  actually 
reaches  the  offeror  within  the  proper  time. 

3.  A  mailed  a  letter  accepting  an  offer  which  B  had  made  to  him  by  letter. 
Thereafter,  A  found  that  the  contract  would  not  be  advantageous  to  him 
and  telegraphed  to  B,  declining  the  offer.  The  telegram  was  received  by  B 
before  the  letter  reached  him,  but  the  court  nevertheless  said  that  a  contract 


THE   AGREEMENT  35 

existed  between  A  and  B  from  the  time  when  A  had  deposited  his  letter  of 
acceptance  in  the  post-office.  Halieck  vs.  Insurance  Company,  26  N.  J. 
Law  268. 

Cancellations,  even  after  acceptance  has  merged  an  offer  into  a  contract, 
are  frequently  tolerated  by  business  men,  but  the  student  must  remember  that 
such  toleration  is  a  matter  of  business  policy,  and  not  of  law. 

50.  Withdrawing  the  Offer.  Until  an  offer  is  withdrawn 
it  may  be  accepted,  and  when  accepted  it  ripens  into  a  contract. 
Before  acceptance  takes  place  in  one  of  the  forms  previously 
noted,  the  offer  may  be  withdrawn  by  the  party  who  made  it. 
This  is  called  revoking  the  offer.  As  no  contract  exists  until  the 
offer  is  accepted,  it  is  logical  and  just  that  the  party  who  makes 
it  be  permitted  to  change  his  mind,  provided  he  notifies  the 
offeree  of  the  revocation  before  the  offeree  accepts  it. 

The  revocation  of  an  offer  may  be  accomplished  in  one  of 
three  ways.  (1)  The  offeror  may  expressly  revoke  his  offer, 
in  which  case  actual  communication  of  the  revocation*  must  be 
effected,  except  that  if  the  offer  was  by  public  notice  a  revocation 
by  the  same  means  is  effective.  (2)  The  offer  may  be  revoked 
by  lapse  of  time.  If  the  offer  was  made  with  a  time  limit,  the 
offer  is  automatically  revoked  when  the  time  expires.  If  no 
time  was  stated  in  the  offer,  the  lapse  of  a  reasonable  length  of 
time  will  effect  revocation.  (3)  The  offer  is  revoked  by  opera- 
tion of  law  if  the  offeror  dies  or  becomes  insane  before  the  offer  is 
accepted,  because  there  can  then  be  no  legal  "meeting  of  the 
minds"  of  offeror  and  offeree. 

51.  Unreal  Mutual  Assent.  Although  the  parties  may  have 
apparently  created  an  agreement  by  mutual  assent,  through  the 
medium  of  an  accepted  offer,  there  are  two  conditions  under 
which  the  contract  may  be  unenforceable  for  the  reason  that  their 
apparent  mutual  assent  was  unreal.  These  are  (1)  when  there 
has  been  a  mistake  of  fact,  and  (2)  when  one  of  the  parties  would 
not  have  entered  into  the  agreement  except  for  the  fraud,  duress, 
or  undue  influence  practiced  upon  him  by  the  other. 

52.  Mistake  of  Fact.  An  agreement  to  be  valid  requires, 
as  we  have  already  seen,  that  the  minds  of  the  parties  shall  have 
met  on  the  same  subject  matter,  at  the  same  time,  and  with  the 

*  Dropping  a  letter  in  the  post  box  will  not  be  sufficient  in  this  case.  The 
letter  must  be  actually  received. 


36  THE  AGREEMENT 

same  intention.  If  any  one  of  these  conditions  is  lacking,  there 
is  a  mistake  of  fact,*  which  will  enable  one,  or  both,  to  avoid 
the  resulting  contract.  Such  a  mistake  must  be  as  to  some 
material  matter,  and  not  merely  as  to  a  trifling  detail,  and  may 
arise  in  one  of  three  ways:  (1)  From  the  nature  of  the  transac- 
tion; (2)  concerning  the  person  with  whom  the  contract  is  made; 
or  (3)  concerning  the  subject  matter  of  the  transaction. 

EXAMPLES 

1.  McGinn  and  Tobey  intended  to  enter  into  a  contract,  the  terms  of 
which  they  had  discussed.  McGinn  then  wrote  out  the  terms  to  which  they 
had  agreed,  and  also  wrote  out  and  sent  to  Tobey  at  the  same  time  a 
second  paper  containing  different  terms,  as  an  alternative  proposition.  Tobey 
signed  both  these  papers,  believing  that  they  were  duplicate  copies  of  the 
agreement.  No  contract  was  created  by  the  second  paper,  because  there 
was  a  mistake  as  to  the  nature  of  the  transaction.  McGinn  vs.  Tobey,  62 
Mich.  252. 

2.  Gordon,  who  had  a  bad  reputation,  advertised  under  the  name  of 
"Addison"  that  he  had  money  to  lend.  Street  read  the  advertisement  and 
agreed  by  letter  with  "Addison"  to  borrow  a  sum  of  money  and  to  pay  "Addi- 
son" a  commission  for  lending  it  to  him.  He  would  not  have  made  any 
agreement  with  Gordon,  on  account  of  his  bad  reputation.  On  discovering 
his  mistake,  the  court  allowed  Street  to  avoid  the  agreement,  and  he  did  not 
have  to  borrow  the  money  or  pay  Gordon  the  commission  for  lending  it  to  him. 
This  was  because  there  was  a  mistake  as  to  the  identity  of  the  parties.  Gordon 
vs.  Street,  2  Q.  B.  (Eng.  1899)  641. 

3.  A  agreed  to  buy,  and  B  agreed  to  sell,  at  a  specified  price,  certain,  cot- 
ton which  the  parties  described  as  "cotton  to  be  delivered  ex  Peerless  from 
Bombay,"  referring  to  the  steamship  on  which  it  was  to  be  transported.  There 
were,  however,  two  ships  named  "Peerless,"  the  buyer  referring  to  one  and  the 
seller  to  the  other.  No  contract  resulted  from  this  agreement,  because  there 
was  a  mistake  as  to  the  subject  matter  of  the  transaction.  Raffles  vs.  Wichelhaus, 
2  H.  &  C.  (Eng.)  906. 

4.  Ames  agrees  to  buy  a  house  from  Bates,  which  Bates  agrees  to  sell. 
The  house,  however,  has  burned  down  before  the  making  of  the  contract, 
without  the  knowledge  of  either  party.     This  avoids  the  contract,  because  the 

*A  mistake  of  fact  is  to  be  distinguished  from  a  mistake  of  law.  A  mistake 
of  law  occurs  when  a  party  misunderstands  the  legal  eflfect  of  his  word  or  acts. 
He  cannot  escape  from  a  contract  on  this  ground.  Such  a  mistake  occurred 
when  .'\  and  B  agreed  to  buy  and  sell,  respectively,  a  house  which  the  parties 
described  as  "being  in  first  class  condition."  A,  the  buyer,  thereafter  refused 
to  complete  the  bargain,  claiming  that  he  had  always  understood  that  the 
law  would  require  B  to  repaint  the  house,  and  that  he  was  mistaken.  This 
did  not  excuse  him,  as  a  party  to  a  contract  is  judged  by  his  acts,  and  not 
what  he  believes  to  be  the  legal  consequences  of  his  acts.  "Ignorance  of  the 
law  excuses  no  one." 


THE   AGREEMENT  37 

subject  matter  has  ceased  to  exist.  At  the  time  of  making  the  agreement 
both  Ames  and  Bates  believe  the  house  to  be  in  existence,  and  if  it  has  been 
destroyed  there  is  «.  mutual  mistake  as  to  the  subject  matter. 

53.  The  second  kind  of  unreal  mutual  assent  arises  by  the 
wrongful  act  of  one  of  the  parties,  which  permits  the  other  party 
to  avoid  the  agreement.  This  wrongful  act  may  be  (1)  fraud, 
(2)  duress,  or  (3)  undue  influence.  The  presence  of  any  of  these 
elements  makes  the  contract  voidable  (see  Sect.  22),  and  the  inno- 
cent party  may  refuse  to  carry  out  the  contract. 

Fraud  is  the  wilful  misrepresentation  of  a  material  fact. 
Mere  exaggeration  of  the  good  qualities  of  the  thing  sold,  or  of 
the  advantages  of  the  proposed  contract,  does  not  constitute 
fraud.  The  other  party  must  be  on  his  guard  against  such 
exaggeration  and  must  form  his  own  conclusions  of  the  merits  of 
the  proposition.  If  fraiid  be  proved,  it  must  be  shown  that 
there  was  a  misstatement  as  to  some  actual  fact,  not  merely  an 
expression  of  biased  opinion. 

EXAMPLES 

1.  A  and  B  were  doing  business  together,  and  in  order  to  get  C  to  buy 
an  interest  in  the  business,  they  made  false  statements  as  to  the  profits  which 
they  had  made  during  the  preceding  year.  C  relied  on  these  statements  and 
agreed  to  buy  an  interest  in  the  business.  Thereafter  he  discovered  that  the 
statements  were  false,  and  the  court  allowed  him  to  refuse  to  buy  or  pay  for 
the  interest  which  he  had  agreed  to  take.     Bower  vs.  Fenn,  90  Pa.  St.  359. 

Note. —  If,  in  the  preceding  example,  A  and  B  had  merely  told  C  of  the 
profits  they  expected  to  make  in  the  future,  and  C  had  promised  to  buy  into 
the  business,  the  contract  would  not  be  voidable,  because  a  statement  concern- 
ing what  may  happen  in  the  future  is  not  a  fact  but  an  opinion,  and  there 
would  have  been  no  wilful  misrepresentation  of  a  material  fact. 

Duress  is  that  which  induces  a  person  to  perform  an  act, 
not  of  his  own  will,  but  because  of  the  threats,  or  acts  of  violence, 
of  some  other  person.  Duress  may  be  brought  about  by  impris- 
oning, or  threatening  to  imprison,  a  person  wrongfully,  or  from 
an  improper  motive,  or  by  threatening  him  with  bodily  injury, 
in  order  to  compel  him  to  enter  into  a  contract.  The  threat  or 
force  must  be  sufficient  to  deprive  a  person  of  his  free  will,  and 
sufficient  to  impress  a  person  of  average  firmness  of  mind. 

A  owed  B  for  some  groceries.  B  wrote  out  a  notice  which  stated  that 
unless  A  gave  him  his  horse  and  a  sum  of  money,  A  would  be  put  in  prison  for 
a  long  time.     A  became  frightened  and  delivered  his  horse  to  B.     He  was 


38  THE   AGREEMENT 

allowed  to  recover  the  horse,  because  he  delivered  it  only  because  of  the  threat 
of  B.     Seiber  vs.  Price,  26  Mich.  518. 

Other  examples  of  duress  are:  Holding  a  gun  at  a  man's  head  and  com- 
pelling him  to  sign  a  contract;  threatening  to  "beat  you  within  an  inch  of 
your  life  unless  you  agree  to  this;"  locking  a  person  in  a  room  until  he  accepts 
an  offer  made  to  him.     Contracts  resulting  from  such  acts  are  voidable. 

Undue  influence  exists  when  a  person  who  occupies  a  position 
of  confidence,  or  trust,  toward  another,  takes  an  unfair  advantage 
of  his  position,  and  thereby  induces  a  contract.  An  attorney 
occupies  such  a  relation  toward  persons  who  consult  him;  as 
also  does  a  physician  toward  his  patient.  If  such  a  person 
induces  another  to  do  some  act,  by  means  of  statements  of  such 
a  character  that  it  is  clear  that  the  act  is  not  voluntary,  but  is 
really  the  act  of  the  person  making  the  statements  and  not  of 
the  person  performing  the  act,  the  contract  resulting  is  said  to 
have  been  induced  by  undue  influence,  and  is  voidable. 

EXAMPLES 

A  young  lady  who  had  just  become  twenty-one  years  old  consulted  her 
uncle  about  all  her  business  affairs.  He  induced  her  to  sign  an  agreement 
that  if  a  bank  would  lend^him  money,  she  would  pay  it  if  he  did  not.  The 
uncle  ran  away  with  a  large  amount  of  money  which  he  secured  from  the 
bank.  The  court  said  that  the  bank  could  not  recover  this  money  from  the 
young  lady,  because  her  uncle  had  secured  this  agreement  by  means  of  undue 
influence  and  the  bank,  knowing  the  relation  of  trust  existing,  should  have 
been  on  its  guard.     Rider  vs.  Kelso,  53  Iowa  367. 

Note. —  All  contracts  made  between  such  persons  are  not  voidable,  how- 
ever. If  they  are  fair  and  just,  they  will  be  enforced,  because  in  that  event 
no  one  can  say  that  they  were  induced  by  undue  influence. 

REVIEW    QUESTIONS 

1.  Perry  in  Rhode  Island  wrote  a  letter  to  an  iron  company  in  Boston, 
oflfering  to  sell  five  tons  of  boiler  plate  at  a  certain  price.  The  iron  company 
telegraphed  to  Perry,  "We  accept  your  offer;  ship  the  boiler  plate."  This 
telegram  was  received  by  Perry.  Did  these  acts  create  a  contract?  Why? 
Who  was  the  offeror?  the  offeree? 

2.  A  promised  to  teach  B  dressmaking  if  B  would  promise  to  work  for  her 
for  six  months.     How  may  this  offer  become  a  contract? 

3.  The  governor  of  Mississippi  received  the  following  telegram:  "There 
are  many  cases  of  yellow  fever  at  Cooper's  Well;  send  out  a  physician  this 
afternoon.  Signed,  I.  Williams."  The  governor  posted  the  telegram  on  a 
bulletin  board,  and  Dr.  Brickell,  who  saw  it,  went  to  Cooper's  Wells,  where 
he  spent  four  days  aiding  the  sick.  He  then  sent  a  bill  to  Williams  for  $250 
for  his  services.  Was  this  proper?  Was  a  contract  created?  Who  was  the 
offeror?  the  offeree? 


THE  AGREEMENT  39 

4.  A  Chicago  street  car  company  posted  the  following  notice: 

"$5000.00 
June  24,  1895. 

"The  above  reward  will  be  paid  for  the  arrest  and  conviction  of  the 
murderer  of  C.  B.  Birch,  who  was  fatally  shot  while  in  the  discharge  of  his 
duties,  on  the  morning  of  June  23d,  at  the  car-barn.  Signed,  Charles  T. 
Yerkes,  Pres.  W.  Chicago  Street  R.  R.  Co." 

Before  the  notice  was  posted  an  employee  of  the  Company  had  given  the 
police  information  which  subsequently  led  to  the  arrest  and  conviction  of  the 
murderer.  Did  the  employee  have  a  right  to  secure  the  reward?  Why? 
Was  there  an  offeror  in  the  above  example?  an  offeree? 

5.  Henthorn  called  on  Eraser  in  Liverpool  and  asked  for  an  offer  on  some 
houses.  Eraser  handed  him  a  written  offer  and  Henthorn  returned  to  his  home 
in  Birkenhead.  The  next  day  at  one  o'clock  Eraser  mailed  a  letter  at  Liver- 
pool to  Henthorn,  withdrawing  the  offer.  This  letter  did  not  reach  Henthorn 
until  five  o'clock,  and  he  at  three  o'clock  had  deposited  a  letter  in  the  post- 
office  at  Birkenhead  accepting  Eraser's  offer  of  the  day  before.  Was  a  contract 
created?     Why?     Who  was  the  offeror?  the  offeree? 

PRACTICAL   SUGGESTIONS 

To  Offerors 

If  you  wish  to  limit  the  time  in  which  an  offer  may  be  accepted,  be  sure  to 
specify  this  limitation  in  your  offer,  because  if  you  fail  to  do  this  the  offer  can 
be  accepted  within  any  reasonable  time. 

In  making  an  offer,  say  exactly  what  you  mean,  because  the  offer  may  be 
accepted  before  you  have  an  opportunity  to  explain.     Then  it  will  be  too  late. 

Don't  make  an  offer  and  then  forget  about  it,  because  it  may  be  unex- 
pectedly accepted. 

Don't  wait  until  tomorrow  to  withdraw  an  offer  if  you  have  changed  your 
mind,  because  the  other  party  may  make  it  a  contract  in  the  meantime. 

To  Offerees 

Don't  change  the  terms  of  the  offer  by  your  acceptance,  because  no  con- 
tract will  result. 

Accept  an  offer  at  once  if  the  bargain  is  a  good  one,  because  the  offer  may 
be  withdrawn. 

Remember  to  stamp  and  properly  address  your  letter  of  acceptance,  if 
you  mail  it,  because  it  may  never  be  delivered  and  the  fault  will  be  yours. 

In  accepting  an  offer,  use  the  designated  medium  .,of  communication, 
if  any;  if  not,  use  the  same  means  of  communication  that  the  offeror  used. 

In  General 

Don't  fail  to  be  clear  in  your  language,  preventing  all  chance  of  mistake, 
because  your  contract  may  be  declared  invalid  on  account  of  mistake. 

Don't  make  verbal  contracts  when  you  could  as  well  make  written  ones.  There 
is  less  opportunity  for  dispute  later. 


CHAPTER  VI 


CONSIDERATION 


n.  Sufficients 


I.  Simple 
Contracts' 


Not  usually 
sufficient 


II.  Formal  Contracts 


a.  Benefit  to 

Promisor 

b.  Detriment  to 

Promisee 

c.  Mutual  Promises 

a.  Impossible 

b.  Moral  Obligation 

Only 
0.  Past  Considera- 
tion 

d.  Previous 

Obligation 

e.  Illegal 


54.  Consideration  is  a  benefit  given  to  the  party  promising 
to  do  an  act  (who  is  called  the  promisor),  or  a  loss  or  detriment 
suffered  by  the  party  to  whom  the  promise  is  made  (called  the 
promisee).  It  is  something  given  or  done  by  one  party  to  a 
contract,  on  account  of  which  the  other  party  agrees  to  perform 
his  share  of  the  obligation.  The  consideration  for  a  contract, 
which  must  be  present  if  the  contract  is  valid,  may  exist  in  three 
different  forms.     These  are, 

1.  A  benefit  received  by  the  person  making  the  promise,  or 
someone  in  his  behalf. 

2.  A  loss  or  detriment  suffered  by  the  person  to  whom  the 
promise  is  made,  or  someone  in  his  behalf,  or 

3.  The  exchange  of  mutual  promises  between  the  parties. 

Note. —  The  word  consideration  may  mean  the  whole  consideration, 
or  a  part  of  the  consideration,  however  small.  If  anything  be  paid  or  done, 
it  binds  the  bargain,  whether  more  remains  to  be  paid  or  done,  or  not. 

55.  Benefit  received.  If  at  the  time  of  the  making  of  the 
contract,  the  party  who  has  made  a  promise  to  another  receives 

40 


CONSIDERATION  41 

something  for  making  the  promise,  this  is  said  to  be  a  benefit  to 
the  promisor.  It  does  not  matter  how  much  or  how  little  he 
receives,  provided  it  is  something  of  value. 

EXAMPLES 

1.  Ames  says  to  Bates,  "I  will  promise  to  pay  your  expenses  at  the 
university  next  year,  if  you  will  pay  me  $500  now."  If  Bates  pays  the  $500, 
Ames  receives  the  benefit  of  having  this  amount  at  present,  and  a  contract 
exists  between  the  parties.     The  $500  is  the  consideration. 

2.  Call  owes  Dale  $1000,  which  he  will  have  to  pay  a  year  later.  Egan 
says  to  Call,  "If  you  will  pay  me  $200  now,  I  will  pay  your  debt  to  Dale  when 
it  falls  due."  When  Call  pays  Egan  the  $200,  this  constitutes  a  legal  benefit 
to  Egan,  even  though  he  will  have  to  pay  five  times  this  amount  to  Dale  a 
year  later  because  of  his  promise. 

An  exchange  of  one  sum  of  money  for  another,  both  payments  being  made 
at  the  same  time,  does  not  come  under  this  rule.  In  Schnell  vs.  Nell,  17  Ind. 
29,  the  court  held  that  an  exchange  of  $600  for  H  left  a  balance  due  of  $599.99, 
for  which  balance  no  consideration  had  been  paid. 

56.  Loss  or  detriment  suffered.  The  most  usual  form  of 
consideration  is  some  loss  or  detriment  suffered  by  the  person 
to  whom  the  promise  is  made,  or  by  some  other  person  for  him, 
in  reliance  on  the  promise.  In  the  example  under  the  preceding 
paragraph  there  is  present,  not  only  a  benefit  to  the  person 
making  the  promise,  but  also  a  loss  or  detriment  to  the  person  to 
whom  the  promise  is  made.  This  loss  or  detriment  may  take 
any  one  of  a  variety  of  forms. 

EXAMPLES  /       . 

1.  John  Bridgers  owed  a  bank  a  large  amount  of  money.  The  bank 
promised  his  wife  that  it  would  not  sue  him,  if  she  would  pay  the  debt  out  of 
her  own  money.  This  she  agreed  to  do.  By  so  agreeing  she  suffered  a  detri- 
ment, since  she  became  bound  to  do  something  that  she  would  not  otherwise 
have  been  obliged  to  do.  This  consideration  was  sufficient  to  bind  the  bank 
to  observe  the  terms  of  its  promises.  Bank  of  New  Hanover  vs.  Bridgers, 
98  N.  C.  67. 

2.  An  uncle  promised  his  nephew  that  he  would  give  him  $5000  if  he 
would  refrain  from  drinking  liquor,  swearing,  and  playing  cards  or  billiards  for 
money  until  he  was  twenty-one  years  old.  The  nephew  agreed  so  to  refrain. 
This  agreement  constituted  a  detriment,  because  while  it  would  have  been 
better  for  the  nephew  not  to  have  done  these  things  any  way,  he  could  legally 
have  done  them  before  he  agreed  not  to.  A  valid  contract  was  created. 
Hamer  vs.  Sidway,  124  N.  Y.  538;  Talbott  vs.  Stemmens,  89  Ky.  222. 

3.  A  agreed  to  pay  B  $100  if  B  would  change  his  residence.  B  changed 
his  residence,  and  thereafter  A  tried  to  avoid  paying  him  the  $100,  claiming 


42  CONSIDERATION 

that  he  had  received  no  benefit  from  B's  change  of  residence.  The  court  said 
tliat  a  benefit  to  the  promisor  was  not  necessary,  inasmuch  as  B,  the  promisee, 
had  suffered  a  detriment  by  moving  when  he  was  not  otherwise  bound  to  do  so. 
Burgess  vs.  Mendel,  62  Ala.  994. 

57.  Mutual  promises.  The  exchange  of  mutual  promises 
between  parties  to  a  contract  constitutes  a  consideration.  Such 
mutual  promises  may  involve  either,  or  both,  of  the  previously 
mentioned  elements,  i.e.,  benefit  to  promisor,  or  detriment  to 
promisee. 

EXAMPLE 
Rich  promised  to  act  as  a  director  of  a  bank  and  to  deposit  his  money 
in  the  bank.     In  consideration  of  this,  the  bank  promised  to  transfer  to  him  a 
part  of  the  stock  in  the  bank.     This  was  a  valid  contract.     Rich  vs.  Lincoln 
State  Nat'l  Bank,  7  Neb.  201. 

58.  An  Apparent  Consideration  may  be  unreal  because, 

1.  It  is  impossible, 

2.  It  represents  only  a  moral  obligation, 

3.  It  is  an  act  previously  performed  (a  past  consideration), 

4.  It  is  something  that  the  doer  was  already  bound  to  do 
regardless  of  the  promise,  or 

5.  It  is  illegal. 

If  any  one  of  these  five  conditions  exist  there  is  no  consideration, 
and  the  contract  is  unenforceable. 

EXAMPLES 

Impossibility.  A  agrees  with  B  that  if  B  will  promise  to  pay  him  $500 
he  will  go  from  New  York  to  London  in  one  day.  This  is  impossible  at  the 
present  time,  and  there  is  no  consideration  for  the  promise  of  B  to  pay  $500. 

Moral  obligation  only.  Bates'  brother  was  taken  sick,  while  penniless 
and  among  strangers,  who  cared  for  him,  and  nursed  him  until  he  recovered. 
Bates  afterwards  promised  to  pay  for  the  services,  but  the  court  said  that 
Bates  was  not  thereby  obliged  to  pay,  as  there  was  no  consideration,  aside 
from  a  moral  obligation. 

Past  consideration.  Riley  sold  his  farm  to  Stevenson,  who  paid  the 
agreed  price,  and  the  bargain  was  fully  completed.  After  the  contract  had 
been  thus  executed,  Riley  met  Stevenson  one  day  and  said,  "I  will  paint  that 
house  I  sold  you  free  of  charge."  Stevei^son  said,  "I  accept."  This  did  not 
create  a  contract  to  paint  the  house,  as  there  was  no  consideration  for  the 
promise  to  paint  the  house,  the  former  contract  to  sell  the  house  having  been 
completed.     Riley  vs.  Stevenson,  94  S.W.  (Mo.)  781. 

Doing  what  one  is  already  bound  to  do.  1.  Hatch  secured  a  warrant 
which  ordered  Mann,  the  village  constable,  to  arrest  Gallup.  This  Mann 
refused  to  do  unless  Hatch  would  pay  him  five  dollars.     Hatch  promised  to 


CONSIDERATION  43 

pay  this  amount,  but  after  the  arrest  had  been  made  refused  to  do  so.  The 
court  said  there  was  no  consideration  for  this  promise,  because  Mann  was 
bound  to  make  such  arrests  from  the  nature  of  his  position.  Hatch  vs.  Mann, 
15  Wend.  (N.  Y.)  44. 

2.  If  public  officers  perform  services  which  would  not  ordinarily  be 
required  of  them,  they  may  recover  on  contracts  offering  them  extra  compen- 
sation for  performing  such  services.  See  Reif  vs.  Paige,  55  Wis.  496,  in  which 
case  the  court  held  that  a  fireman  was  not  bound  to  risk  his  own  life  to  bring 
out  dead  bodies. 

Illegal  consideration.  Cummings  promised  to  buy  liquor  of  a  whole- 
sale company,  which  agreed  to  sell  it  to  him.  The  wholesale  company,  how- 
ever, had  no  government  license,  and  was  prohibited  by  law  from  selling 
liquor.  The  company  later  sued  Cummings  because  he  refused  to  complete 
his  contract  and  buy  the  liquor.  The  court  said  that  he  could  not  be  compelled 
to  do  so,  as  the  consideration  was  illegal.     Perkins  vs.  Cummings,  2  Gray  258. 

59.  Failure  of  Consideration.  If  any  of  the  conditions 
discussed  in  the  preceding  paragraph  exist,  there  is  no  contract, 
because  there  was  no  consideration  at  any  time.  On  the  other 
hand,  a  contract  may  have  been  vaUd  when  it  was  made,  but  it 
may  subsequently  be  invalidated  by  destruction  of  the  consid- 
eration. This  is  called  failure  of  consideration.  Contracts  in 
which  the  consideration  totally  fails  after  the  contracts  have  been 
created,  will  not  be  enforced. 

EXAMPLE 

1.  A  contracted  to  sell  to  B  a  warehouse,  which  B  promised  to  buy  for  an 
agreed  price.  After  the  contract  was  made,  but  before  it  was  executed,  the 
building  was  destroyed  by  accident,  without  the  fault  of  either  party.  The 
court  said  that  both  of  the  parties  were  discharged  from  their  obligations, 
because  the  consideration  had  failed.  This  contract  was  also  impossible  of 
performance.     Powell  vs.  Dayton,  12  Ore.  488. 

60.  Third  Persons  may  claim  rights  because  of  contracts 
made  for  their  benefit,  by  other  parties,  even  though  they  con- 
tributed no  part  of  the  consideration.  It  is  first  necessary  for 
such  a  third  person  to  show  that  the  parties  to  the  contract 
clearly  intended  to  confer  a  personal  right  upon  him.  If  the 
benefits  are  merely  incidental  to  the  main  object  of  the  contract, 
the  third  person  cannot  himself  enforce  the  contract. 

EXAMPLES 

1.  A  loaned  B  a  sum  of  money,  in  consideration  of  which  B  promised  to 
pay  the  same  amount  on  a  future  day  to  C,  to  whom  A  was  indebted.  C  sued 
B  on  the  contract,  and  the  court  said  that  there  was  a  consideration  for  the 


44  CONSIDERATION 

agreement  between  A  and  B,  and  that  although  C  had  contributed  nothing 
to  it,  the  contract  was  made  for  his  benefit  and  he  could  recover.  Lawrence 
vs.  Fox,  20  N.  Y.  268. 

2.  A  water  company  contracted  to  supply  a  city  with  water  for  public 
purposes,  including  fire  protection.  Davis  lost  his  house  by  fire,  because  the 
water  supply  failed,  and  sued  the  water  company  for  his  loss.  The  court  said 
he  could  not  recover  on  this  contract  against  the  water  company,  since  the 
contract  was  not  made  for  his  benefit,  which  was  merely  incidental  to  the 
main  object  of  the  contract.     Davis  vs.  Clinton  Water  Works,  54  la.  59. 

61.  Options.  In  the  preceding  chapter  it  was  stated  that 
an  offer  could  be  revoked  at  any  time  before  acceptance.  If, 
however,  an  offer  is  made  to  be  open  a  definite  time  and  there  is 
a  consideration  for  keeping  the  offer  open,  the  accepted  offer 
becomes  an  option  which  cannot  be  revoked  until  the  time  stated 
has  elapsed.  Options  have  great  business  importance,  because 
a  man  to  whom  an  offer  is  made  may  wish  time  to  consider  and 
investigate  it.  He  may  not  wish  to  spend  his  time  and  money 
investigating  if  the  offeror  can  withdraw  the  offer  at  any  time. 
He  is,  therefore,  at  liberty  to  ask  the  offeror  to  promise  to  leave 
the  offer  open  and  in  force  for  a  definite  time,  if  he  will  pay  a 
consideration  to  the  offeror  for  this  promise.  An  option  is  in 
itself  a  contract,  and  requires  a  consideration, 

EXAMPLE 

A,  having  a  piece  of  real  estate,  offered  it  to  B  for  $5000.  B,  wishing  to 
investigate  its  value,  paid  ten  dollars  for  ^  thirty-day  option  at  that  price. 
Before  the  thirty  days  had  elapsed  A  had  an  opportunity  to  sell  it  to  someone 
else  at  a  higher  figure  and  claimed  that  no  contract  existed  between  him  and 
B.  The  court  said  there  was  a  consideration  for  his  promise  to  keep  the  offer 
open.    Clarno  vs.  Grayson,  30  Ore.  111. 

62.  Formal  Contracts.  In  discussing  the  subject  of  consider- 
ation the  examples  have  all  been  instances  of  simple  contracts. 
If  the  contract  were  under  seal,  we  have  already  seen  that  at  com- 
mon law  no  consideration  was  required.  A  formal  contract 
offered  the  only  means  of  making  a  valid,  enforceable  contract 
to  make  a  gift  to  another.  The  rule  has  been  changed  by  many 
states*  so  that  the  presence  of  a  seal  is  only  presumptive  evidence 
of  a  consideration,  and  if  it  can  be  shown  that  nothing  of  value 

*  California,  Illinois,  Iowa,  Indiana,  Kentucky,  Kansas,  Massachusetts, 
Wisconsin. 


CONSIDERATION  45 

was  given,  the  contract  may  be  set-  aside.*  Other  states  have 
by  statute  aboHshed  seals  altogether,  and  the  same  rule  applies 
where  they  are  used  that  applies  to  simple  contracts.  In  other 
states  sealed  instruments,  with  their  quality  of  needing  no  con- 
sideration, are  retained  for  contracts  for  the  sale  and  transfer 
of  real  estate. 

EXAMPLES 

1.  A  contract  under  seal  stated  that  the  sum  of  one  dollar  had  been  paid 
by  one  party  to  the  other  as  a  consideration.  It  was  shown  that  this  amount 
had  never  been  paid.  The  court  said  that  the  contract  could  nevertheless  be 
enforced  because  of  the  seal.  Southern  Bell  Telephone  Company  vs.  Harris, 
117  Ga.  1001. 

Note. —  In  states  where  a  seal  is  merely  presumptive  evidence  of  a  con- 
sideration the  facts  in  the  above  case  would  destroy  the  contract. 

PRACTICAL   SUGGESTIONS 

In  making  a  contract,  assure  yourself  that  there  is  a  valuable  considera- 
tion, because  otherwise  it  will  not  be  enforced. 

Don't  agree  to  do  illegal  acts,  because  your  duty  as  a  citizen  directs  you  to 
uphold  the  law,  not  to  break  it. 

Similarly,  paying,  or  promising  to  pay,  other  persons  for  doing  illegal 
acts  is  to  be  avoided,  because  you  may  lose  your  money,  and  certainly  cannot 
compel  them  to  perform  their  promises,  which  were  invalid  when  made. 

Don't  make  a  contract  which  you  think  may  require  a  seal,  without 
consulting  a  lawyer,  because  only  a  lawyer  can  inform  you  as  to  the  law  of  your 
particular  state  in  this  regard.   . 

Insist  upon  paying  something  for  another's  promise  to  leave  an  offer  open, 
because  only  then  will  it  become  an  option;  otherwise  he  may  revoke  it  at  his 
own  pleasure. 

Don't  make  verbal  contracts  when  you  could  as  well  make  written  ones.  There 
is  less  opportunity  for  dispute  later. 

REVIEW   QUESTIONS 

1.  Libbey  promised  to  pay  Eaton  $100  for  the  privilege  of  naming  Eaton's 
child.  Eaton  gave  this  privilege  to  Libbey,  who  named  the  child,  but  refused 
to  pay  the  $100.  Was  there  a  contract?  a  consideration?  Who  received 
the  benefit,  if  any?     Who  suffered  the  detriment,  if  any? 

2.  A  city  in  July,  1862,  adopted  an  ordinance,  which  it  posted  in  promi- 
nent places,  and  in  which  it  stated  that  it  "hereby  agreed  to  pay  to  every 

*  The  difference  between  a  formal  contract  and  a  simple  contract,  in 
the  matter  of  consideration,  is  that  in  case  of  a  formal  contract  consideration 
is  always  presumed  until  it  is  proved  that  there  was  none,  while  in  a  simple 
contract  consideration  is  never  presumed  but  must  always  be  shown. 


46  CONSIDERATION 

person  who  had  enlisted,  or  who  should  thereafter  enlist  in  the  Civil  War,  the  sum 
of  $200."  Frey  had  enlisted  in  May;  Johnson  enlisted  in  October.  Can 
either  collect  the  $200  from  the  city?  Was  there  a  contract?  with  whom? 
What  was  the  consideration? 

3.  Bray  was  engaged  to  marry  Bertha  Snell.  He  promised  to  pay  her 
$3000  if  she  would  marry  someone  else.  This  she  did,  but  Bray  refused  to 
pay  her  the  $3000.    Can  she  collect  it?    Was  there  a  contract ?  a  consideration? 

4.  Cowling  believed  himself  indebted  to  Hicks  for  $5000,  due  a  year 
later.  Hamilton  promised  to  pay  this  debt  when  it  came  due,  it  Cowling  would 
give  him  (Hamilton)  Cowling's  house,  and  also  agreed  to  pay  Cowling  $10,000 
in  cash.  To  this  Cowling  agreed  and  gave  up  his  house  to  Hamilton,  who 
paid  him  $10,000.  Later  it  developed  that  Cowling  had  owed  Hicks 
nothing.  Can  Hicks  collect  the  $5000  from  Hamilton?  Why?  Who 
furnished  the  consideration,  if  any?  « 

5.  A's  property  was  on  fire,  and  he  promised  the  chief  of  the  fire  depart- 
ment $1,000  if  he  would  do  his  utmost  to  put  it  out.  He  also  offered  him 
another  $1,000  if  he  would  rescue  a  child  on  the  top  floor  of  the  burning 
building.  The  chief  did  both  these  things  and  attempted  to  collect  $2,000. 
A  claimed  that  both  his  promises  were  without  consideration.  Was  any 
contract  created?     What?     What  was  the  consideration? 

6.  Woods  wrote  to  Marks  as  follows: 

"Chicago,  September  1,  1915. 

"I,  Harry  Woods,  offer  to  sell  you  60,000  bushels  of  spring  wheat  at  85 
cents  per  bushel,  delivered.  Harry  Woods." 

Later  and  on  September  3  he  added  the  following: 

"In  consideration  of  $60,  the  receipt  of  which  I  acknowledge,  I  promise 
to  leave  the  above  offer  open  for  acceptance  until  the  hour  of  1:15  P.  M. 
September  14,  1915.     Harry  Woods." 

Marks  wrote  accepting  this  offer  September  13  and  was  informed  by 
Woods  that  he  had  sold  all  his  wheat.  Was  a  contract  created?  Why? 
What  was  Woods'  second  writing  called?     Why? 


CHAPTER  VII 
SUBJECT  MATTER 


All  Subject  Matter  is  Valid  Except: 

a.  In  restraint  of  trade 

b.  In  restraint  of  marriage 

c.  Obstructive  of  Public 
Justice 


1.  Against  Public 
Policy 

2.  Immoral 

3.  Fraudulent 

4.  Forbidden  by  Law 

5.  Criminal 


Subject  Matter 


{a.  An  Act 
b.  A  Promise 
c.  Property 

{a.  Definite 
b .  Valuable 
c .  Legal 


63.  Subject  Matter  is  that  which  forms  the  basis  of  the 
agreement,  and  about  which  the  agreement  is  made.  It  has 
already  been  stated  that  this  must  be  something  lawful,  possible, 
and  definite  in  its  nature,  and  may  be  the  performance  of  an 
act,  a  promise,  the  surrender  of  a  right,  or  the  delivery  of  any- 
thing which  the  parties  deem  to  have  value. 

64.  Prohibited  Subject  Matter.  Parties  to  contracts  may 
agree  to  do,  or  not  to  do,  any  act  not  in  the  nature  of  things 
impossible  and  which  is  sufficiently  definite  to  enable  the  courts 
to  determine  their  intention,  unless  they  attempt  to  create  con- 
tracts which  are, 

1 .  Against  public  policy, 

2.  Immoral, 

3.  Fraudulent, 

4.  Forbidden  by  law,  or,    • 

5.  Criminal. 

If.  the  subject-matter  possesses  any  of  these  five  elements,  the 
attempted  contract  will  be  invalid. 

47 


48  SUBJECT   MATTER 

65.  Against  Public  Policy.  The  courts  will  not  enforce 
contracts  which  are  against  public  policy.  Courts  seek  to  pro- 
mote the  best  interests  of  the  public  and  will  not  lend  their 
assistance  to  those  who  attempt  to  injure  public  welfare.  A 
contract  is.against  public  policy  if  it  is, 

1.  In  general  restraint  of  trade, 

2.  In  restraint  of  marriage,  or, 

3.  Obstructive  of  public  justice. 

These  are   the  most  frequently  occurring  kinds  of  contracts 
against  public  policy,  though  many  others  exist. 

66.  Restraint  of  trade.  Contracts  in  general  restraint 
of  trade  prevent  free  and  natural  competition.  Such  contracts 
tend  to  raise  prices  and  are  detrimental  to  the  public  at  large. 
The  right  of  buyers  and  sellers  to  compete  freely  in  their  business 
is  a  right  which  the  law  has  always  recognized. 

An  agreement  may  be  in  restraint  of  trade  if  it  unduly  limits 
a  person  in  the  time,  place,  or  manner  in  which  he  may  exercise 
his  right  to  engage  in  free  competition.  Whether  the  restraint 
is  undue  depends  upon  the  entire  circumstances  of  each  case. 

EXAMPLES 

1.  Kingsbury  contracted  not  to  engage  in  the  newspaper  business  in  a 
certain  town  for  five  years.  He  made  this  contract  with  the  purchaser  of  his 
newspaper.  This  contract  was  valid,  and  the  restraint  was  not  undue,  but 
reasonable  a'nd  valid.     Andrews  vs.  Kingsbury,  212  111.  97. 

Note. —  On  the  other  hand,  a  contract  by  which  Ames  agrees  never  to 
engage  in  the  grocery  business,  or  one  in  which  Bates  agrees  not  to  sell  lead- 
pencils  at  retail  anywhere  in  the  United  States,  can  serve  no  useful  purpose, 
and  unduly  limits  the  activity  of  Ames  or  Bates. 

2.  A,  B,  C,  and  D,  all  manufacturers  of  a  useful  commodity,  combined 
in  an  agreement  not  to  sell  their  product  below  a  specified  price,  and  only  to 
sell  a  limited  quantity  each  year.  This  agreement  was  against  public  policy 
and  could  not  be  enforced.  Cummings  vs.  Union  Blue  Stone  Co.,  164  N.  Y. 
401. 

67.  Restraint  of  Marriage.  Persons  who  make  contracts 
by  which  they  agree  to  prevent  others  from  marrying,  are  inter- 
fering with  a  relation  that  is  necessary  to  the  best  interests  of 
society.     Such  contracts  are  void  as  against  public  policy. 

1.  Ames,  Bates,  Smith,  Robinson,  and  Jones  agree  in  consideration  oi 
the  exchange  of  mutual  promises  that  they  will  never  marry.  This  contract 
is  void  and  any  party  may  marry  at  will  without  breaking  a  contract. 


SUBJECT   MATTER  49 

2.  Palmer  agreed  with  his  wife  that  if  she  would  bring  suit  against  him 
for  divorce,  he  would  not  contest  it,  and  would  give  her  $5000.  The  wife 
in  accordance  with  this  offer,  and  relying  upon  it,  sued  for  divorce.  The  court 
refused  to  grant  the  divorce  or  to  hear  anything  about  the  case,  because  the 
parties  were  acting  upon  a  contract  which  sought  to  destroy  the  marriage 
relation.     Palmer  vs.  Palmer,  72  Pac.  (Utah)  3. 

68.  Obstructive  of  public  justice.  Persons  who  make  con- 
tracts by  which  they  attempt  to  interfere  with  public  duties, 
pubHc  officers,  or  the  administration  of  pubHc  laws,  tend  to 
corrupt  our  form  of  government.  Such  contracts  are  void, 
even  though  the  particular  act  may  have  done  the  public  no 
actual  injury. 

EXAMPLES 

1.  Schneider  based  a  suit  against  a  labor  organization  upon  a  contract 
in  which  the  parties  had  for  a  sum  of  money  agreed  to  use  their  influence  to 
secure  the  appointment  of  a  certain  person  to  a  public  office.  The  court 
refused  to  hear  the  case,  regardless  of  whether  the  person  supported  would 
have  made  a  proper  public  officer.  ,  Schneider  vs.  Local  Union  No.  60,  1 16 
La.  670. 

2.  Innes,  a  postmaster,  agreed  to  locate  the  post-office  in  a  certain 
building  in  consideration  of  a  merchant's  promise  to  pay  part  of  the  rent. 
This  was  illegal,  as  it  tended  to  injure  the  public  service,  by  interfering  with 
the  free  discretion  of  a  public  officer.  He  should  have  placed  the  post-office 
where  it  would  have  been  most  convenient  for  the  postal  service.  Woodman 
vs.  Innes,  47  Kan.  26. 

69.  Immoral.  Persons  who  attempt  to  make  contracts 
in  their  nature  immoral  fail  to  create  any  binding  legal  relation, 
and  such  contracts  are  void. 

EXAMPLE 
A  doctor  agreed  with  Bates  that  he  would  represent  that  certain  injuries 
which  Bates  had  received  in  a  railroad  accident  were  of  a  serious  nature,  and 
that  his  compensation  for  medical  services  should  be  determined  by  the  amount 
of  the  settlement  which  Bates  secured  from  the  railroad.  This  agreement 
was  contrary  to  good  morals  in  that  it  promoted  dishonesty  and  lying.  It 
created  no  contract.     Jerome  vs.  Bigelow,  66  111.  452. 

70.  Fraudulent.  If  a  contract  is  induced,  or  brought  into 
existence,  by  fraud,  the  agreement  is  not  void,  but  voidable,  at 
the  option  of  the  party  injured.     (See  Sec.  22.) 

EXAMPLE 
Stone  employed  Hardy  to  sell  his  farm.  Hardy  to  receive  a  commission 
of  on*'  per  cent  of  the  selling  price.     Grant  applied  to  Hardy  for  a  farm,  and 


50  SUBJECT   MATTER 

Hardy  told  him  that  he  worked  only  for  buyers  of  farms  and  that  they  paid 
his  commissions.  Grant  then  agreed  to  pay  him  $300  if  he  found  a  suitable 
farm.  Hardy  then  introduced  Stone  and  Grant  who  made  a  contract  for  the 
farm.  Hardy  sued  Grant  for  his  commission  of  $300,  but  the  court  said  that 
he  had  secured  the  agreement  with  Grant  by  fraud,  and  that  an  agent  of 
this  kind  cannot  work  for  both  parties.     Grant  vs.  Hardy,  33  Wis.  668. 

71.  Forbidden  by  Law.  A  contract  to  do  that  which  the 
law  forbids  will  not  be  held  good.  Were  the  law  to  enforce  such 
contracts  it  would  be  lending  its  aid  to  its  own  violation. 

EXAMPLES 

1.  A  made  a  contract  to  sell  real  estate  to  B,  who  agreed  to  buy.  The 
contract  was  made  on  Sunday,  and  when  A  later  refused  to  sell  the  real  estate, 
B  sued  him  on  this  contract.  The  court  said  that  the  contract  was  unenforce- 
able in  Indiana,  because  made  on  Sunday.     Love  vs.  Wells,  25  Ind.  503. 

Note. —  Contracts  made  on  Sunday  are  binding  unless  especially  forbidden 
by  statute.     In  a  few  states  such  contracts  are  void,  in  others  voidable. 

2.  A  promised  to  pay  B  $500  if  he  lost  a  bet  which  he  made  with  B. 
He  lost  the  bet,  but  the  court  refused  to  let  B  collect  the  money,  because 
gambling  contracts  were  prohibited  by  Pennsylvania  law.  State  vs.  Wilson, 
84  Pa.  737. 

3.  A  ordered  B,  a  stock-broker,  to  sell  wheat  "on  margins"  for  future 
delivery,  his  intention  being  simply  to  speculate  and  not  to  buy  the  grain,  a 
fact  which  was  known  to  B.  B  sued  for  his  commissions  as  a  broker,  but  the 
court  said  that  B  was  a  party  to  a  gambling  transaction  and  could  not  recover. 
Irwin  vs.  Williar,  110  U.  S.  499. 

72.  Criminal.  Persons  cannot  commit  crimes  without  lay- 
ing themselves  open  to  punishment.  Neither  can  they  contract 
with  other  persons  to  commit  criminal  acts.  By  attempting 
so  to  do,  they  may  themselves  violate  the  law  and  become 
liable  criminally.  Thus  one  cannot  agree  with  another  to  pay 
him  for  committing  perjury  (falsifying  on  the  witness  stand), 
forgery,  robbery,  burglary,  or  any  act  which  the  law  has  declared 
is  a  crime. 

PRACTICAL   SUGGESTIONS 

It  is  unwise  to  contract  regarding  subject  matter  which  you  cannot 
describe  accurately,  because  the  courts  will  probably  have  the  same  difficulty 
and  may  declare  it  void  for  uncertainty 

If  you  buy  another  man's  business  and  good  will  it  is  poor  policy  to  require 
him  to  unduly  restrict  his  right  to  compete  with  you  in  the  future,  because  you 
may  thereby  unlawfully  restrain  him,  and  if  you  do  he  can,  if  he  wishes,  open 
up  a  rival  business  next  door. 


SUBJECT   MATTER  51 

Don't  indulge  in  sharp  practices  and  try  to  deceive  another  person  with 
whom  yo'^  are  contracting,  because  the  contract  may  be  binding  on  you  alone. 

Comply  with  the  state  laws  regarding  licenses,  if  you  are  a  physician, 
insurance  agent,  stock-broker,  peddler,  real  estate  agent,  or  are  engaged  in  any 
vocation  where  a  license  is  required,  because  you  may  later  find  that  you 
have  been  working  for  nothing. 

Avoid  gambling  contracts,  not  only  because  they  are  discountenanced  by 
men  of  business  integrity,  but  also  because  they  are  illegal  and  void. 

Don't  make  verbal  contracts  when  you  could  as  well  make  written  ones. 
There  is  less  opportunity  for  dispute  later. 


REVIEW   QUESTIONS 

1.  Barber  sued  Alcott  for  services  rendered  as  a  physician  at  Alcott's 
request.  It  appeared  that  Barber  was  not  licensed  by  the  state  board  of  health 
as  required  by  statute  in  his  state  before  a  person  could  practice  medicine. 
Can  Barber  recover  for  his  services?     Was  there  a  contract?     Why? 

2.  Gray  and  Hook  were  both  applicants  for  the  position  of  inspector 
of  flour  for  the  city  of  New  York,  a  public  office,  the  officer  to  be  appointed 
by  the  governor  of  the  state.  Hook  withdrew  in  favor  of  Gray  in  considera- 
tion of  Gray's  promise  to  pay  him  one-half  the  salary  if  appointed.  Gray  was 
appointed  to  the  position,  but  refused  to  pay  Hook  anything.  Can  Hook 
recover  from  him?     Was  there  a  contract?     Why? 

3.  Nunnemacher  owned  a  single  horse  and  wagon  in  which  he  delivered 
oil,  vhich  he  sold  at  retail,  in  the  city  of  Hammond.  He  sold  his  business  to  an 
oil  company  and  agreed  as  a  part  of  the  contract  of  sale  never  again  to  sell  oil 
in  the  state  of  Indiana.  Later  he  sold  oil  in  Hammond.  Can  the  company 
with  which  he  made  the  agreement  recover  from  him?     Why? 

4.  Perry  invented  a  sand-papering  machine.  He  sold  his  rights  to  a 
company  and  agreed  for  a  consideration  that  he  would  never  "manufacture, 
sell,  or  cause  to  be  sold  any  sand-papering  machines  of  any  description." 
Later  he  invented  a  different  type  of  sand-papering  machine  which  he  offered 
for  sale.  The  company  sued  him  to  make  him  comply  with  his  contract  with 
them.     Could  they  enforce  compliance?     Why? 

5.  (a)  Jones,  an  unlicensed  liquor  dealer,  delivered  beer  to  Smith,  who 
promised  to  pay  for  it.  {b)  Ames  sold  Bates  grass  seed,  telling  him  that  it  was 
clover  seed,  though  Ames  knew  at  the  time  that  it  was  not;  and  Bates  promised 
to  pay  for  it.  Neither  Smith  nor  Bates  paid  in  the  above  examples.  Jones 
and  Ames  sued  them,  respectively.     Can  they  recover  in  either  case?     Why? 


CHAPTER  VIII 

DISCHARGE  OF  CONTRACTS 

I.  By  Performance  of  allfl.  Precedent 

Conditions  which    <2.  Concurrent 
may  be  (3.  Subsequent 

II.  By  Intervention  of  Impossibility 

il .  Waiver 
2.  Novation 
3.  Modified  Agreement 


IV.  By  Operation^ 
of  Law 


1.  Alteration  of  Instrument 

2.  Merger  ^ 

3 .  Bankruptcy 

4.  Death 
V.  By  Breach 

73.  In  General.  When  two  or  more  competent  persons 
contract,  we  have  seen  that  they  thereby  create  rights  on  the 
part  of  one,  and  duties  on  the  part  of  the  other,  which  have  not 
existed  before.  One  party  has  a  duty  to  do  something  which 
the  other  party  has  a  right  to  demand ;  or  each  party  may  have 
both  a  right  against  and  a  duty  toward  the  other.  How  can  the 
contract  be  discharged  and  the  parties  freed  from  the  obHgations 
which  they  imposed  upon  themselves? 

74.  Discharge  by  Performance.  The  simplest  manner  in 
which  a  party  to  a  contract  can  discharge  his  part  of  the  obli- 
gation is  to  perform  completely  all  that  he  agreed  to  do.  When 
he  has  performed  what  he  has  agreed  to  do  he  is  freed  from 
further  liability.  He  then  has  the  right  to  compel  the  other  party 
to  perform  his  duties,  if  any,  or  to  pay  damages  if  he  refuses  to 
do  so.  Nothing  short  of  a  complete  performance,  in  strict 
accordance  with  the  terms  of  the  contract,  will  operate  as  a 
discharge  by  performance. 

EXAMPLES 
1.     A  agreed  to  build  a  barn  for  B  for  the  sum  of  $500.     A  performed  his 
work,  and  B  gave  hira  $500.     The  contractual  relation  was  discharged  by  the 

52 


DISCHARGE   OF   CONTRACTS  53 

performance  of  the  respective  agreements.     McGuire  vs.  Neils  Lumber  Co. 
97  Minn.  293. 

2.  If  in  the  above  example  A  had  built  the  barn,  and  B  refused  to  pay 
the  $500,  A  alone  would  have  been  discharged  and  he  could  then  have  sued  B 
for  his  part  of  the  contract.     Allen  vs.  Cooper,  22  Mo.  136. 

75.  Conditions  in  contracts.  It  was  stated  at  the  end  of 
the  preceding  paragraph  that  every  condition,  which  the  contract 
imposed  upon  him,  must  be  performed  by  a  party  before  he  will 
be  discharged.  Conditions  in  contracts  are  classified  according 
to  the  period  of  time  at  which  they  should  have  been  performed, 
into  (1)  precedent  conditions,  (2)  concurrent  conditions,  and  (3) 
subsequent  conditions. 

A  precedent  condition  is  a  condition,  imposed  by  the  contract, 
which  one  party  must  perform  before  the  other  party  is  under  any 
obligation  to  perform  his  part  of  the  contract.  It  may  also  be  a 
condition  required  to  be  performed  before  any  contract  exists. 

A  concurrent  condition  is  a  condition  which  must  be  per- 
formed by  one  party,  at  the  same  moment  of  time  that  he 
requires  performance,  by  the  other  party,  of  some  other  condi- 
tion of  the  same  contract.  Unless  he  performs  or  offers  to  per- 
form the  condition  imposed  upon  him  at  the  time  he  makes  a 
demand  for  performance  upon  the  other  party,  his  demand  is 
incomplete,  and  the  other  party  is  not  in  default  as  to  his  share. 

A  subsequent  condition  is  the  occurrence  of  some  fact  which 
the  parties  to  a  contract  have  expressly  agreed  shall  destroy 
the  contract  in  the  event  that  it  happens.  The  existence  of 
a  condition  subsequent  is  a  matter  of  defense.  It  must  be 
proved  to  the  court  by  the  party  who  seeks  to  show  that  thereby 
the  contract  was  discharged. 

EXAMPLES 
Condition  precedent.  A  subscription  was  made  to  the  stock  of  a  corpora- 
tion, to  be  due  only  when  two  hundred  thousand  dollars  should  be  subscribed 
and  a  branch  office  of  the  company  had  been  located  in  New  York  City.  The 
total  amount  was  subsequently  subscribed,  but  no  branch  office  was  opened 
in  New  York  City.  The  court  declared  that  both  these  conditions  must  have 
been  performed  before  the  corporation  had  discharged  its  obligation  and  betore 
it  could  collect  from  the  subscribers.  Brewer's  Fire  Insurance  Company  vs. 
Burger,  10  Hun.  (N.  Y.)  56. 

Condition  concurrent.  Smith  agreed  in  writing  to  convey  100  acres  of 
land   to  Fuller,   in  consideration  of  Fuller's  promise  to  pay  him  $6000.00 


54  DISCHARGE   OF   CONTRACTS  , 

therefor.  The  payment  of  the  money  and  the  transfer  of  the  land  are  condi- 
tions concurrent  and  neither  party  can  compel  performance  by  the  other,  or 
sue  for  damages,  without  showing  that  (1)  he  had  performed  his  condition 
concurrent,  or  (2)  that  he  had  offered  to  perform  it  and  his  offer  (called  a 
tender  of  performance)  had  been  refused.  Fuller  vs.  Hubbard,  6  Cowen 
(N.  Y.)  13. 

Condition  subsequent.  If  A  sells  a  cow  to  B  as  a  Jersey  cow  for  $100  and 
agrees  that  B  may  return  the  cow  if  she  is  not  a  Jersey,  the  fact  that  the  cow 
is  not  a  Jersey  is  a  condition  subsequent,  which  entitles  B  to  return  the  cow, 
receive  his  money,  and  be  discharged  under  the  contract. 

76.  Substantial  Performance  of  Conditions.  Nothing  less 
than  a  complete  performance  of  all  the  conditions  of  a  contract, 
with  strict  adherence  to  their  terms,  will  operate  as  such  a  dis- 
charge of  one  party  as  to  entitle  him  to  compel  performance  by 
the  other  party,  A  court  of  equity  will  sometimes,  in  cases  of 
great  hardship,  allow  a  party  who  has  substantially  performed 
his  part  to  recover  the  value  of  his  partial  performance,  and  dis- 
charge him  under  the  contract.  An  exception  to  this  rigid  rule 
of  the  law  courts  exists  in  contracts  to  do  complicated  and 
expensive  things,  in  cases  in  which  the  deviation  from  the 
expressed  conditions  may  be  slight. 

EXAMPLES 

1.  Brown,  a  tailor,  agreed  to  make  a  suit  of  clothes  for  Foster  to  his  entire 
satisfaction.  Foster  was  not  pleased  with  the  suit  and  refused  it.  Brown 
sued  for  the  price,  and  proved  that  the  clothes  were  well  made,  barring  a  slight 
defect,  which  could  have  been  easily  remedied.  The  court  refused  to  allow 
him  to  recover,  however,  as  he  had  not  performed  his  condition,  which  was  to 
satisfy  Foster.     Brown  vs.  Foster,  113  Mass.  136. 

2.  In  the  United  States  the  substantial  performance  of  a  building  con- 
tract, if  the  deviation  was  made  in  good  faith,  permits  recovery.  In  such  a 
contract,  slight  omissions  or  defects  are  likely  to  occur  through  some  excusable 
oversight,  inadvertence,  or  mistake,  in  spite  of  the  most  honest  and  intelligent 
efforts  to  perform  in  every  particular.  "To  hold  that  the  builder  could  not, 
in  such  a  case,  recover  on  his  contract,  would  be  too  rigid  a  rule  to  apply  to 
the  practical  affairs  of  life."     Leeds  vs.  Little,  42  Minn.  414. 

The  entire  contract  price  of  a  building  was  $2500,  and  damage  by  defective 
construction,  together  with  the  amount  necessary  to  repair  the  defects, 
amounted  in  value  to  $876.  The  court  said  this  did  not  constitute  a 
substantial  performance  within  the  above  rule.  Ketchum  vs.  Herrington, 
45  N.  Y.  S.  R.  59. 

77.  Time  of  Performing  Conditions.  The  conditions  in 
contracts  must  be  performed  within  a  reasonable  time,  if  the 


DISCHARGE   OF   CONTRACTS  55 

contract  itself  specifies  no  date  for  performance.  On  the  other 
hand,  if  the  parties  specify  in  their  contract  a  date  for  its  perform- 
ance, time  is  said  "to  be  made  part  of  the  essence  of  the  contract," 
and  the  condition  must  be  performed  on  that  date,  in  order  to 
entitle  a  party  to  be  discharged  thereby.  What  constitutes  a 
reasonable  time,  when  no  date  is  specified,  depends  on  the  nature 
of  the  contract  and  all  the  circumstances  of  the  case.  Similarly, 
express  provisions  as  to  time  are  construed  by  the  courts  in  the 
same  way  as  persons  of  ordinary  intelligence  would  construe 
them.  Fractions  of  days  are  not  noticed  by  the  courts,  unless 
the  parties  specify  that  they  should  be.  If  the  date  of  perform- 
ance is  placed  on  Sunday,  the  parties  are  allowed  until  Monday. 

EXAMPLE 

Shinn  contracted  to  sell  a  farm  to  Roberts,  who  agreed  to  buy  it  for  $117 
an  acre.  The  contract  was  in  writing  and  stated  that  the  deed  to  the  farm 
should  be  delivered  at  a  specific  bank  on  March  20  at  ten  A.  M.,  when  Roberts 
was  to  pay  his  money.  Roberts  was  at  the  bank  ready  to  pay  at  the  hour 
named,  but  Shinn  did  not  appear  until  five  o'clock,  when  he  offered  the  deed 
to  Roberts,  who  refused  to  take  it.  Shinn  then  resold  the  farm  for  $99  an 
acre  and  sued  Roberts  for  the  difference  as  the  damages  which  he  claimed 
Roberts  had  caused  him.  The  court  declared  that  Shinn  could  not  recover  his 
loss  from  Roberts  because  he  had  not  performed  the  condition  imposed  upon 
him  as  to  the  time  required.     Shinn  vs.  Roberts,  20  N.  J.  L.  435. 

Note  that  the  above  contract  was  a  contract  to  sell,  not  a  sale. 

78.  Payment.  Payment  may  be  in  money,  or  in  the  deliv- 
ery of  property  or  rights,  according  to  the  contract  of  the  parties. 

Tender.  A  tender  is  an  offer  to  pay.  A  penalty  for  non- 
payment may  be  avoided  by  an  actual  transfer  of  the  thing  to  be 
paid  or  by  a  tender  of  payment. 

EXAMPLE 

Hayden  contracted  to  sell  and  deliver  to  Demets  50,000  pounds  of  copper 
of  a  specified  quality,  to  be  paid  for  in  thirty  days.  Copper  of  the  specified 
quality  and  weight  was  unloaded  on  Demets'  platform,  but  he  refused  to  accept 
it.  Hayden  took  the  copper  to  his  warehouse,  and  notified  Demets  that  he 
would  hold  it  subject  to  his  order.  At  the  end  of  thirty  days  he  sued  Demets 
for  the  agreed  price  and  the  court  allowed  him  to  recover.  Hayden  vs. 
Demets,  53  N.  Y.  431. 

Payment  and  tender  are  matters  of  defense.  The  party 
who  claims  to  have  paid  or  to  have  tendered  payment  must  prove 
this  in  court.     To  prove  that  a  tender  has  been  properly  made,  a 


56  DISCHARGE  OF   CONTRACTS 

party  must  show  that  he  made  an  unconditional  offer  to  perform 
the  condition  at  the  proper  time  and  that  the  other  party  refused 
to  accept  the  money  or  other  thing  offered;  and  he  must  hold 
himself  still  willing  to  perform,  except  in  so  far  as  the  wrongful 
act  of  the  other  party  has  injured  him  or  placed  him  in  such  a 
position  that  he  can  no  longer  do  so. 

Legal  Tender.  If  the  tender  be  of  money  the  party  who 
made  the  tender  must  also  show  that  he  offered  to  pay  money 
which  the  law  declares  is  "legal  tender,"  and  that  he  actually 
produced  such  money  and  offered  it  to  the  other  party.  An  offer 
of  payment  by  means  of  money  that  is  not  legal  tender  is  suffi- 
cient, unless  the  other  party  specifically  objects  on  the  ground 
that  the  money  offered  is  not  legal  tender  money. 

Legal  tender  money.  Congress  has  provided  that  the  follow- 
ing moneys  shall  be  legal  tender:  (1)  Gold  coin  and  silver  dollars 
in  any  amount;  (2)  silver  coins,  less  than  one  dollar,  in  amounts 
not  exceeding  ten  dollars;  (3)  copper  and  nickel  coins  up  to 
twenty-five  cents;  (4)  greenbacks  for  any  amount,  except  for 
duties  and  interest  on  the  public  debt;  (5)  treasury  notes  in 
any  amount,  except  for  duties  and  interest  on  the  public  debt. 
Bank  notes  are  not  legal  tender. 

Effect  of  tender.  The  effect  of  a  tender  is  to  relieve  the 
one  who  makes  the  tender  from  liability  for  interest  on  the  debt 
from  the  time  of  the  offer  and  from  the  liability  for  court  costs 
in  case  the  court  decides  that  the  amount  offered  was  sufficient. 
This  does  not  in  any  sense  discharge  the  debt. 

79.  Intervention  of  Impossibility.  Contracts  to  do  things 
that  are  by  their  nature  impossible  are  void  from  the  beginning, 
as  previously  stated.  Sometimes,  however,  a  contract  that  at 
the  time  of  making  seemed  possible,  becomes  impossible  by 
operation  of  law  or  the  destruction  of  the  subject  matter. 

EXAMPLES 

1.  A  contracted  to  make  repairs  on  Bates'  house,  which  was  destroyed 
by  fire  the  day  after  the  contract  was  made.  The  court  said  that  both  parties 
were  excused  from  performing  this  contract,  because  it  could  only  be  performed 
if  the  house  remained  in  existence.     Butterfield  vs.  Byron,  153  Mass.  517. 

2.  A  conveyed  land  to  B,  who  contracted  that  he  would  build  a  row  of 
flat  buildings  on  it.     The  city,  however,  condemned  the  property  by  proper 


DISCHARGE   OF   CONTRACTS  57 

legal  proceedings  and  built  a  city  hall  on  it.  B  was  discharged  from  further 
performance  of  his  contract  with  A,  because  of  the  act  of  law.  Baker  vs. 
Johnson,  42  N.  Y.  126. 

3.  A  famous  opera  singer  contracted  to  sing  in  a  concert  in  Boston  for  a 
specified  two  weeks'  engagement.  Before  the  date  set  she  became  critically 
ill,  and  failed  to  appear.  When  the  manager  of  the  opera  house  sued  her  for 
violating  her  contract,  the  court  declared  that  her  illness  excused  her  Irom 
performing  the  contract,  and  said  that  contracts  for  personal  service  are 
always  made  subject  to  an  implied  condition  that  the  party  shall  be  alive  and 
physically  able  to  perform.     Marvel  vs.  Phillips,  162  Mass.  399. 

80.  Discharge  by  Agreement.  Not  only  may  the  contract 
be  discharged  by  performance,  and  in  some  special  instances  by 
impossibihty  of  performance,  but  the  parties  to  a  contract  may 
mutually  agree  that  it  shall  be  discharged.  If  they  so  agree  the 
law  will  give  effect  to  their  intention,  and  all  obligations  under 
the  original  contract  thereby  cease  to  exist.  Their  agreement  to 
discharge  the  contract,  which  is  itself  of  the  nature  of  a  new  con- 
tract, may  take  one  of  three  different  forms.  It  may  be  either 
(1)  a  waiver,  (2)  a  novation,  or  (3)  a  modified  agreement. 

A  waiver  is  the  mutual  relinquishment  of  all  rights  which 
were  created  by  the  contract.  In  executory  contracts  the 
consideration  to  support  this  new  agreement  is  found  in  the 
mutual  promises  of  the  parties.  In  contracts  executed  by  one 
party  a  valid  waiver  can  be  made  only  upon  a  valuable  consider- 
ation, or  by  a  contract  under  seal.  The  term  waiver  is  also  used 
to  indicate  the  relinquishment  by  one  party  of  any  of  his  rights. 

A  novation  is  the  discharge  of  one  of  the  parties  by  substitut- 
ing in  his  place  some  other  person,  not  originally  bound  by  the 
contract.  A  novation  can  be  accomplished  only  by  agreement 
of  all  the  parties  to  the  contract. 

A  modified  agreement  consists  in  the  substitution  of  some  new 
contract  for  the  one  which  previously  existed  between  the 
parties.  When  made,  the  new  agreement,  and  not  the  original 
one,  determines  the  rights  and  duties  of  the  part.  ?. 

EXAMPLES 

1.  Ames  agrees  to  employ  Bates  as  a  stenographer  at  the  salary  of  fifty 
dollars  a  month,  and  Bates  accepts.  Later  Ames  employs  another  sten- 
ographer and  Bates  secures  other  employment.  Both  agree  to  cancel  their 
contract.     This  discharges  both  parties. 


58  DISCHARGE  OF  CONTRACTS 

2.  Paine  owed  Doe  $100,  and  Doe  owed  Foster  $100.  The  three  parties 
met  and  agreed  that  Paine  should  pay  Foster  $100.  As  a  consideration  for 
this  agreement  Doe  promised  to  release  Paine  and  Foster  promised  to  release 
Doe.  Later,  Paine  refused  to  pay  Foster,  and  the  court  said  that  the  novation 
destroyed  the  original  contract  and  allowed  Foster  to  recover  from  Paine. 
Foster  vs.  Paine,  63  Iowa  85. 

3.  Taylor  made  a  contract  to  build  a  rosewood  cabinet  for  Pulliam  for 
the  sum  of  $100.  He  was  unable  to  secure  any  rosewood,  and  offered  to  fur- 
nish Pulliam  other  specified  furniture  instead.  Pulliam  accepted  and  the  other 
furniture  was  delivered  to  him,  but  he  refused  to  pay  the  price.  The  court 
said  he  must  do  so,  and  declared  that  the  original  contract  to  deliver  a  rose- 
wood cabinet  had  been  discharged.     Pulliam  vs.  Taylor,  50  Miss.  251. 

81.  Discharge  by  Operation  of  Law.  One  or  both  parties  to 
a  contract  may  be  discharged  from  their  obligations  because  of 
changed  conditions,  or  because  of  acts  on  their  part,  other  than 
performance,  which  the  law  expressly  declares  shall  discharge 
the  contract.  These  may  be  either  (1)  wrongful  alteration  of  a 
written  instrument,  (2)  creation  of  a  merger,  (3)  becoming 
bankrupt,  or  (4)  death. 

82.  Alteration  of  instrument.  If  a  deed  or  any  simple 
contract  in  writing  be  wrongfully  altered  by  an  addition,  inter- 
lineation, or  erasure,  by  one  of  the  parties,  the  other  party  to  the 
contract  is  thereby  released  from  further  obligation.  This 
rigid  rule  of  law  was  adopted  to  prevent  parties  from  tampering 
with  the  written  evidence  of  their  contracts. 

EXAMPLE 

Clark,  by  a  written  contract  promised  to  pay  McGrath  $100  on  April 
first,  with  interest  at  the  rate  of  five  per  cent.  McGrath  changed  the  rate  of 
interest  to  six  per  cent.  He  later  sued  Clark  on  this  contract,  and  the  court 
said  that  he  could  not  recover,  because  he  had  altered  the  contract.  McGrath 
vs.  Clark,  56  N.  Y.  34. 

83.  Merger.  A  contract  is  discharged  if  its  terms  are 
included  in  another  contract  of  higher  legal  value.  This  can  take 
place  when  the  terms  of  a  simple  contract  are  included  in  a  con- 
tract under  seal.  If  this  is  done  the  simple  contract  is  discharged, 
for  it  is  supplanted  by  the  sealed  contract.  Similarly,  an  open 
account  may  be  merged  in  a  judgment  based  upon  it. 

EXAMPLE 
Myers  agreed  orally  to  transfer  stock  in  a  corporation  to  Hewitt,  who 
agreed  to  buy  it.     Later  they  made  a  similar  agreement  to  the  same  effect 


DISCHARGE   OF   CONTRACTS  59 

under  seal.  Thereafter  the  rights  and  duties  existing  between  them  were 
determined  by  the  contract  under  seal  and  not  by  their  original  agreement. 
Myers  vs.  Hewitt,  16  Ohio  453. 

84.  Bankruptcy  is  a  third  condition  under  which  the  law 
will  discharge  the  rights  and  duties  of  parties  to  contracts. 
Bankruptcy  is  a  proceeding  by  means  of  which  all  of  a  person's 
property  is  divided  among  those  whom  he  owes,  called  his 
creditors,  after  which  all  his  liabilities,  on  contract  and  otherwise, 
are  discharged. 

It  often  happens  in  business  that  a  man  becomes  hopelessly  involved  with 
self-imposed  duties  and  liabilities.  If  he  were  to  continue  through  life  with 
this  burden,  he  could  improve  his  own  condition  only  in  rare  instances,  and 
might  become  a  drag  on  society.  The  law  has  therefore  said  to  him,  "If  you 
will  turn  over  all  your  property  to  the  Federal  court  to  distribute  among  your 
creditors,  you  may  become  discharged  from  your  debts,  and  start  anew." 

Or  it  may  happen  that  his  creditors  believe  him  to  be  unable  to  pay  all 
of  them,  or  discover  that  he  is  trying  to  pay  part  of  them  at  the  expense  of  the 
rest,  or  that  he  is  trying  to  conceal  his  property  to  defraud  them.  If  so,  the 
law  declares  that  they  may,  through  the  medium  of  a  Federal  court,  have  his 
property  divided  among  them,  but  provides  further  that  if  they  do  so  they 
must  discharge  him  from  all  his  duties  and  liabilities. 

It  is  customary  to  call  any  person  who  is  in  financial  difficulties,  a  bank- 
rupt. This  is  not  a  correct  use  of  the  term,  for  no  person  is  a  legal  bankrupt 
until  one  of  the  Federal  courts  of  the  United  States  has  declared  him  so. 

If  a  person  wishes  to  secure  a  discharge  of  his  debts  in  a  bank- 
ruptcy court  he  first  files  a  petition  asking  that  the  court  declare 
him  to  be  a  bankrupt. 

If  he  pursues  this  course  and  becomes  a  bankrupt  of  his  own  will  and  act  he 
is  called  a  voluntary  bankrupt. 

If  the  creditors  of  a  man  desire  to  have  his  property  divided, 
they  file  a  petition  with  the  court.  They  must  show,  however, 
that  he  is  insolvent  and  that  he  has  committed  what  is  called  an 
act  of  bankruptcy.  Such  an  act  may  be  that  he  has  preferred 
some  of  his  creditors  to  others  while  insolvent,  or  that  he  has 
dealt  with  his  property  so  as  to  defraud  creditors,  or  has  con- 
sented in  writing  to  be  declared  a  bankrupt. 

When  the  bankruptcy  proceedings  are  brought  by  the  creditors,  the 
debtor  is  called  an  involuntary  bankrupt. 

If  the  court  declares  the  debtor  a  bankrupt,  it  also  appoints 
some  person  to  be  receiver  of  his  property.  The  bankrupt  files 
a  list,  or  schedule,  of  all  his  property  and  all  his  debts.     The 


60  DISCHARGE   OF   CONTRACTS 

receiver  collects  all  the  money,  and  other  properties,  belonging 
to  the  debtor,  which  he  can  find,  reduces  all  to  cash,  and  holds  the 
proceeds  for  division  among  the  creditors  who  have  filed  claims 
with  the  court.  The  debtor,  however,  is  entitled  to  keep  certain 
things,  called  his  exemptions.  These  are  usually  his  home,  and 
his  furniture  and  similar  articles.  What  these  are  depend  on  the 
state  law. 

If  the  bankrupt  has  acted  fairly  throughout  all  these  proceed- 
ings; if  he  has  actually  surrendered  all  his  property;  has  not 
been  declared  a  voluntary  bankrupt  then  within  six  years, 
preceding  and  prior  to  bankruptcy  did  not  obtain  credit  by  a 
materially  false  statement  in  writing;  he  will  be  entitled  to 
petition  for  a  discharge.  If  the  court  grants  his  petition  he  will 
then  be  discharged  of  all  his  old  debts,  and  may  begin  his  busi- 
ness care  r  anew,  untroubled  by  old  liabilities,  unless  he  wishes 
to  renew  them  expressly  by  a  new  promise  to  pay.*  ' 

85.  By  death.  The  only  classes  of  contracts  discharged  by 
death  are  executory  contracts  for  personal  services,  in  which 
personal  skill  and  taste  are  involved,  or  personal  trust  and 
confidence  between  the  parties.  If  these  conditions  are  present, 
the  death  of  one  of  the  parties  discharges  the  contract.  But  in 
contracts  which  do  not  involve  these  elements,  and  which  can 
be  as  well  performed  by  another,  the  contract  is  not  discharged 
by  the  death  of  one  of  the  parties,  and  may  be  enforced 
against  his  estate.  The  effect  of  the  death  of  a  joint  contractor 
has  been  discussed.     (See  Sec,  27.) 

PRACTICAL   SUGGESTIONS 

Respect  the  conditions  imposed  upon  you  by  a  contract,  because  otherwise 
you  may  thereby  become  disabled  to  demand  performance  by  the  other 
party. 

*  AH  debts,  on  contract  or  otherwise,  may  be  discharged  by  a  court  of 
bankruptcy,  except:  (1)  taxes  levied  by  the  United  States,  state,  county, 
district,  or  city  in  which  he  lives;  (2)  judgments  in  actions  for  fraud,  or 
obtaining  money  by  false  pretenses  or  false  representations,  or  for  willful  and 
malicious  injuries  to  the  person  or  properties  of  another;  (3)  alimony  or 
maintenance  of  his  wife  and  children  as  decreed  by  a  court:  (4)  claims  which 
were  not  duly  included  by  him  in  his  schedule  in  time  for  proof  and  allowance, 
unless  the  creditor  knew  of  the  proceedings,  or,  (5)  debts  which  were  created 
by  his  fraud,  embezzlement,  misappropriation,  or  defalcation  while  acting  as 
an  officer  in  a  capacity  of  trust. 


DISCHARGE   OF   CONTRACTS  61 

Perform  the  conditions  imposed  upon  you  at  the  proper  time,  because 
you  have  given  the  other  party  the  right  to  expect  that  you  will  do  as  you 
agreed,  and  if  he  is  disappointed  he  will  probably  sue  you. 

The  alteration  of  written  contracts  without  the  consent  of  all  parties  is 
perilous  and  the  law  is  drastic  and  severe  as  to  such  offenses. 

Don't  transact  business  with  anyone  in  danger  of  bankruptcy,  because, 
no  matter  how  much  he  may  wish  to  prefer  you  to  his  other  creditors,  it  is 
the  purpose  of  the  bankruptcy  law  to  treat  all  creditors  alike. 

Don't  make  verbal  contracts  when  you  could  as  well  make  written  ones.  There 
is  less  opportunity  for  dispute  later. 


REVIEW  QUESTIONS 

1.  On  February  2,  1914,  Pope  in  New  York  agreed  to  sell  and  Hager  in 
St.  Louis  to  buy  300  tons  of  No.  1  Iron  at  a  specified  price.  On  January  8, 
1915  the  iron  arrived  in  St.  Louis  and  Pope  oflfered  to  deliver  it,  but  Hager 
refused  to  accept  it.  Pope  then  sued  Hager  for  the  agreed  price,  proving  a 
tender  on  his  part  of  the  iron.     Can  he  recover  the  price  from  Hager?     Why? 

2.  The  following  is  a  copy  of  an  agreement  between  two  parties: 
"For  value  received,  I  promise  to  pay  or  deliver  to  Catharine  Corbitt. 

$100  in  such  articles  of  merchandise,  and  at  such  times,  as  she  may  select. 

(Signed)  L.  Stonmetz. 
Accepted,  Catharine  Corbitt." 

Later  Miss  Corbitt  wrote  the  following  to  Stonmetz: 

"I  call  upon  you  to  perform  your  promise.  Catharine  Corbitt";  and  he 
doing  nothing  further,  she  sued  him.  Was  this  proper  without  any  further 
act  on  her  part?     What  conditions  did  the  contract  impose  on  each  party? 

3.  Ames  contracted  to  build  a  woodshed  for  Bates  for  an  agreed  price, 
promising  to  complete  it  before  June  first.  When  the  woodshed  was  half 
built  on  May  first,  Ames  fell  from  the  roof,  breaking  his  leg  and  further 
disabling  himself.  He  then  employed  Call,  without  Bates'  consent,  to  com- 
plete the  woodshed,  and  when  it  was  completed,  which  was  before  June  first, 
he  sued  Bates  for  the  agreed  price.  Was  this  a  proper  performance  on  his 
part?     Why? 

4.  ^  Jones  went  to  Black,  a  tailor,  for  a  suit  of  clothes  to  be  made  to  order. 
He  selected  the  cloth  from  Black's  stock  and  said  to  Black,  "If  I  am  not  per- 
fectly satisfied  with  these  clothes  in  every  respect,  after  they  are  finished  and 
I  have  tried  them  on,  I  will  not  take  them."  Black  replied,  "All  right." 
After  the  suit  was  finished  and  Jones  had  tried  it  on  he  refused  to  keep  it  on  the 
ground  that  one  shoulder  did  not  suit  him.  Black  sued  him  for  the  price  and 
proved  by  other  tailors  that  the  shoulder  was  an  excellent  "fit,"  and  that  no 
one  could  do  any  better  on  account  of  the  fact  that  Jones  had  a  broken  collar- 
bone which  had  been  improperly  set.  Under  all  these  circumstances  could 
Jones  properly  refuse  to  take  the  suit?     Why? 


CHAPTER   IX 


DISCHARGE   OF   CONTRACTS  —  Continued 


ri. 


As  to  Con- 
sequences 


1.  Money  Damages- 


2. 


II.  As  to  Time 


3. 

{I: 


Divisible 
Contracts 
Breach  of 
Subsidiary 
terms 

Discharge  from  further 

Performance 

Specific  Performance 

Anticipatory  Breach 
At  Date  of  Performance 


86.  Breach  of  Contract.  The  fifth  method  by  which  one's 
obUgation,  or  duty,  created  by  a  contract,  may  be  discharged, 
is  by  a  wrongful  act  of  the  other  party.  A  wrongful  act  which 
discharges  the  innocent  party  to  a  contract  may  be  either  the 
failure  of  the  other  party  to  do  something  which  by  the  con- 
tract he  has  agreed  to  do,  or  the  act  of  the  other  party  in  doing 
something  which  by  the  contract  he  has  agreed  not  to  do.  Such 
omissions  or  acts  violate  the  terms  of  the  contract,  and  are 
called  breaches  of  the  contract. 

87.  Consequences  of  Breach.  When  there  has  been  a 
breach  of  contract,  the  injured  party  is  entitled  to  either  (1) 
money  damages,  (2)  discharge  of  his  own  obligation  to  perform, 
or  (3)  the  right  to  enforce  performance.  Which  of  these  rights 
he  is  entitled  to  depends  upon  the  circumstances  and  the  law 
covering  the  particular  case. 

Whether  the  injured  party  is  limited  to  damages,  or  whether 
he  may  also  be  excused  from  his  own  performance,  depends  on 
the  nature  of  the  terms  which  the  other  party  has  violated. 
The  injured  party  will  be  discharged  from  the  contract,  in  addi- 
tion to  having  an  action  for  damages,  unless, 

1.  The  contract  is  divisible,  or, 

2.  The  term  which  was  violated  was  subsidiary  to  the  main 
purpose  of  the  contract. 

62 


DISCHARGE  OF   CONTRACTS  63 

88.  Divisible  Contract.  A  contract  may  consist  of  a  number 
of  promises  to  perform  a  series  of  acts,  really  a  series  of  separate 
contracts.  If  this  be  true,  the  failure  of  one  party  to  perform 
one  of  these  acts  does  not  discharge  the  other  from  the  whole 
contract,  or  even  entitle  him  to  sue  as  for  breach  of  the  whole 
contract.  A  breach  in  such  a  contract  operates  only  on  that 
part  of  the  contract  which  it  affects,  and  no  other.  It  is  often 
difficult  to  determine  whether  a  contract  is  entire  or  divisible, 
and  each  case  must  depend  entirely  upon  its  own  facts.  If,  how- 
ever, the  contract  be  divisible,  a  breach  gives  rise  only  to  an 
action  for  damages,  and  does  not  operate  to  discharge  the 
contract.  >; 

EXAMPLES 

1.  Under  a  contract  Norrington  agreed  to  sell  to  Wright  "5000  tons  of 
iron  rails,  for  shipment  from  a  European  port,  or  ports,  at  the  rate  of  about 
1000  tons  per  month,  beginning  February,  1880,  but  the  whole  contract  to  be 
shipped  before  August  first,  1880."  Norrington  shipped  in  February  400  tons, 
which  Wright  received  and  paid  for,  but  when  Wright  learned  that  only  885 
tons  had  been  shipped  in  March  he  refused  to  receive  them  and  cancelled  the 
whole  contract.  The  court  declared  the  contract  to  be  entire,  and  said  that 
the  failure  to  ship  1000  tons  a  month  was  a  breach  of  the  entire  agreement  as 
that  was  what  had  been  contemplated.     Norrington  vs.  Wright,  115  U.  S.  188. 

2.  Cahen  sold  to  Piatt  10,000  boxes  of  glass  to  be  delivered  during  the 
months  of  October,  November  and  December,  to  be  paid  for  on  delivery. 
Cahen  delivered  4000  boxes  in  October  which  were  not  up  to  specifications 
agreed  upon  in  the  contract  and  Piatt  cancelled  the  whole  agreement.  The 
court,  however,  interpreted  this  as  a  divisible  contract  and  declared  that  a 
breach  only  aflfected  a  part  of  the  contract  and  did  not  permit  of  cancellation 
of  the  whole.     Cahen  vs.  Piatt,  69  N.  Y.  348. 

Note. —  The  two  examples  above  may  seem  very  similar,  but  it  will  be 
observed  that  in  the  first  example  Norrington's  failure  to  ship  1000  tons  a 
month  had  already  violated  a  principal  clause  of  the  whole  contract,  while 
in  the  second  example  Cahen  still  had  plenty  of  opportunity  during  November 
and  December  to  fulfil  his  contract,  even  though  the  first  shipment  of  4000 
boxes  was  unsatisfactory. 

89.  Breach  of  Subsidiary  Terms.  It  would  be  grossly 
unfair  to  allow  a  party  to  refuse  to  proceed  with  a  contract  because 
the  other  had  violated,  perhaps  unintentionally,  some  term 
which  was  of  little  vital  importance.  The  law  has  recognized 
this  and  does  not  permit  such  a  result  to  follow.  If  the  term 
which  is  violated  does  not  go  to  the  essence  of  the  contract,  it 


64  DISCHARGE   OF   CONTRACTS 

will  merely  give  rise  to  an  action  for  damages,  but  will  not  entitle 
the  innocent  party  to  cancel  the  entire  agreement. 

90.  Specific  Performance.  Sometimes  damages,  which  are 
always  measured  in  money,  will  not  compensate  a  person  for 
the  loss  of  benefit  which  he  has  suffered  by  reason  of  the  violation 
of  the  terms  of  the  contract  by  the  other  party.  Such  a  condi- 
tion often  exists  in  case  one  has  contracted  to  buy  a  house  or 
farm,  desiring,  for  some  personal  reason,  to  secure  the  particular 
house  or  farm  for  which  he  contracted.  No  other  will  satisfy 
him,  and  no  amount  of  damages  will  entirely  pay  him  for  his  loss. 
Recognizing  this  fact,  courts  of  equity  enable  a  party  who  has 
made  a  contract  regarding  real  estate  to  compel  the  other  party 
to  do  actually  as  he  agreed.  If  he  agreed  to  sell  a  farm,  he  will 
be  compelled  to  convey  it;  and  the  rule  works  both  ways,  for 
the  purchaser  may  be  compelled  to  accept  it  and  pay  the  price. 
This  remedy  is  called  specific  performance  and  applies,  with 
few  exceptions,  only  to  contracts  for  the  sale  and  purchase  of 
land.  If,  after  one  has  been  so  ordered  to  perform  his  promise, 
he  continues  to  refuse,  the  court  of  equity  will  declare  him  to  be 
in  contempt  of  court  and  order  him  punished. 

In  contracts  to  buy  or  sell  personal  property  it  rarely  happens  that  money 
damages  will  not  suffice  as  compensation,  but  in  rare  instances,  as  where  one 
has  agreed  to  sell  another  an  heirloom,  or  a  patent  right,  which  can  be  pur- 
chased of  him  alone,  the  innocent  party  may  secure  a  decree  of  specific  perform- 
ance, as  it  is  called,  of  a  contract  to  sell  personal  property. 

EXAMPLES 

1.  Ames  contracts  to  sell  Blackacre  to  Bates  for  $5000,  who  agrees  to 
accept  it  at  that  price,  the  contract  being  in  writing.  Later  Ames  refuses  to 
perform  his  part.  Bates  makes  a  tender  of  the  money,  which  is  refused,  and 
then  sues  Ames  in  a  court  of  equity,  which  will,  in  the  absence  of  fraud  or  mis- 
take, order  Ames  to  accept  the  money  and  convey  the  land. 

2.  Parker,  a  contractor  engaged  in  building  a  court  house,  entered  into  a 
contract  with  Neal  to  buy  200,000  feet  of  pine  boards  to  be  cut  from  a  specific 
tract  of  pine  timber  situated  in  Caroline  county,  known  as  the  "Bennett  Todd 
Tract."  He  desired  this  particular  lumber  in  order  to  comply  with  the  speci- 
fications for  the  court  house,  and  no  other  lumber  in  the  vicinity  was  satis- 
factory. When  Neal  broke  the  contract,  the  court  declared  that  the  circum- 
stances were  exceptional  and  would  entitle  Parker  to  have  specific  performance 
by  Neal,  even  though  it  was  a  contract  to  sell  personal  property.  Neal  vs. 
Parker,  98  Md.  254. 


DISCHARGE   OF   CONTRACTS  65 

91.  Anticipatory  Breach.  Violations  of  a  contract  may 
occur  before  the  time  of  performance.  Ames,  who  has  agreed  to 
sell  his  house  to  Bates  on  the  first  of  July,  may  have  declared  on 
the  first  of  May  that  he  repudiated  his  contract  and  refused  to  be 
bound  by  it,  or  he  may  have  torn  down  his  house.  In  either 
event,  whether  it  be  by  express  renunciation  or  by  act,  Ames  is 
said  to  have  committed  an  anticipatory  breach  of  his  contract, 
being  a  total  violation  of  it  before  the  time  of  performance.  If 
such  anticipatory  breach  be  committed,  the  innocent  party  need 
not  wait  until  the  time  of  performance,  holding  himself  always 
ready  to  perform  his  own  part  of  the  contract,  but  is  at  once 
discharged  from  his  obligations,  and  may  immediately  sue  the 
other  party  for  his  damages. 

This  is  subject  to  the  limitation  that  except  in  mutual 
promises  to  marry,  or  similar  contracts  calling  for  continued 
steadfastness,  the  party  committing  such  an  anticipatory 
breach  may  repent  and  withdraw  his  repudiation,  even  against 
the  other's  protest,  at  any  time  before  it  is  acted  upon  by  the 
innocent  party  or  has  caused  him  damages. 

EXAMPLE 
Clark  employed  Marsiglia  to  clean  paintings  from  a  picture  gallery, 
but  before  the  latter  began  the  work  Clark  countermanded  his  directions  and 
refused  to  continue  the  contract.  Marsiglia,  however,  proceeded  with  the 
work  and  when  it  was  completed  sued  Clark  for  the  entire  contract  price. 
The  court  decided  that  he  could  only  recover  the  expenses  which  he  had 
suffered  at  the  time  Clark  repudiated  the  contract  and  the  profits  on  the 
whole  contract.  He  had  no  right  to  continue  the  work.  It  was  his  duty  to 
keep  the  damages  as  low  as  possible.     Clark  vs.  Marsiglia,  1  Denio  (N.  Y.)  318. 

92.  Damages  for  Breach  of  Contract.  If  the  injured  and 
innocent  party  to  a  contract  which  has  been  broken,  sues  for 
damages,  he  may  recover  the  amount  of  loss  which  he  has 
suffered.  This  loss  is  estimated  in  money,  and  is  measured  by 
the  net  value  of  the  contract,  or  what  he  would  have  realized 
had  the  contract  been  performed.  The  net  value  includes  the 
actual  outlay  and  the  profits  which  could  have  been  reasonably 
anticipated.  Remote  and  uncertain,  or  speculative,  damages 
cannot  be  recovered,  but  only  those  which  can  be  readily  com- 
puted and  ascertained.  If  no  anticipated  profits  be  proved,  the 
injured  and  innocent  party  may  recover  the  net  expenses  which 
he  incurred  in  preparing  to  perform  his  part  of  the  contract. 


66  DISCHARGE  OF   CONTRACTS 

The  fundamental  idea  of  the  assessment  of  damages  is  that  the  party  who 
has  been  injured  by  the  other's  breach  of  contract  may  recover  for  the  loss 
of  the  benefit  which  he  would  have  received  had  the  contract  been  performed. 
This  loss  of  benefit  is  measured  by  the  difference  in  value  between  what  he 
received  and  what  he  should  have  received. 

No  one  can  recover  damages  for  breach  of  contract  if  he  himself  caused  the 
breach  to  be  committed.  If  one  party  contracts  to  build  another  a  house  by 
May  first,  from  materials  to  be  furnished  by  the  latter,  the  party  for  whom 
the  house  was  to  be  built  cannot  object  because  it  is  not  completed  within 
the  time  specified  if  he  failed  to  furnish  the  materials  promptly.  "One  cannot 
recover  for  his  own  wrong." 

The  assessment  of  damages  for  breach  of  contract  is  largely  a  matter  of 
computation  from  the  facts  of  the  particular  situation,  the  aim  always  being 
to  determine  the  money  value  of  specific  losses  and  the  money  value  of  the  loss 
of  the  benefit  caused  by  the  breach. 

EXAMPLES 

1.  Deeds  contracted  to  purchase  from  Gardner  500  buggies  of  specified 
description  and  at  stipulated  prices,  to  be  ordered  as  needed.  Gardner, 
relying  on  the  contract,  purchased  all  the  necessary  material  and  constituent 
parts,  but  Deeds  repudiated  the  contract.  Gardner  sued  for  damages,  without 
manufacturing  the  buggies,  and  was  allowed  to  recover  at  once  the  profits 
which  the  contract  would  have  yielded,  in  this  case  the  difference  between  the 
contract  price  and  the  cost  of  production.     Gardner  vs.  Deeds,  116  Tenn.  128. 

2.  Meech  contracted  to  furnish  a  hall  for  the  performance  of  a  theatrical 
company,  and  to  retain  one-half  the  gross  profits  for  the  use  of  the  hall. 
Later  he  refused  to  furnish  the  hall  and  the  theatrical  company  sued  him  and 
attempted  to  recover  an  amount  which  they  claimed  would  have  been  one-half 
the  gross  profits.  This  they  could  not  do,  because  such  profits  were  purely 
speculative  and  not  susceptible  of  proof.  The  amount  of  their  damages  was 
limited  to  the  expense  which  they  had  incurred  preparing  for  the  engagement. 
Bernstein  vs.  Meech,  130  N.  Y.  354. 

93.  Summary  of  Rights  Caused  by  Breach.  (I)  One  who 
seeks  to  recover  damages  because  of  another's  violation  of  the 
terms  of  a  contract  must  show: 

1.  That  he  did  not  cause  the  breach  of  the  other,  and 
that  the  breach  was  of  a  condition  precedent  to  any  duty  on  his 
part,  or, 

2.  That  it  was  the  breach  of  a  condition  concurrent,  and 
that  at  the  time  and  place  of  performance  he  was  himself  ready 
and  willing  to  perform,  or, 

3.  That  it  was  an  anticipatory  breach,  which  he  acted  upon. 
In  each  of  the  above  cases  he  must  show  that  he  was  thereby 

damaged  in  an  amount  capable  of  proof. 


DISCHARGE   OF   CONTRACTS  67 

(II)  One  who  seeks  to  cancel  a  contract  because  of  another's 
breach  cannot  do  so,  if 

1.  His  own  promise  was  independent, 

2.  The  contract  was  divisible,  or 

3.  The  term  which  was  violated  was  subsidiary  to  the  main 
purpose  of  the  contract. 

(III)  One  who  seeks  a  decree  of  specific  performance  for 
breach  by  the  other  must  show: 

1.  That  he  is  ready  and  willing  to  perform  his  part, 

2.  That  damages  will  not  adequately  compensate  him  for 
his  loss. 


PRACTICAL   SUGGESTIONS 

Avoid  making  oral  contracts  to  buy  land,  because  if  the  price  goes  up  the 
other  party  may  decide  to  keep  his  land  and  you  cannot  ask  the  court  to  order 
specific  performance  of  such  an  agreement. 

A  continuation  of  performance  of  your  side  of  a  contract  after  the  other 
party  has  committed  a  total  anticipatory  breach  is  unnecessary  and  improvi- 
dent, because  y5u  can  only  recover  for  the  loss  you  suffered  up  to  that  time, 
not  afterwards. 

The  performance  of  acts  which  may  result  in  the  other  party  committing 
a  breach  of  his  contract  with  you  is  dangerous,  because  you  may  thereby 
become  the  one  at  fault  —  both  morally  and  legally. 

Don't  make  verbal  contracts  when  you  could  as  well  make  written  ones.  There 
is  less  opportunity  for  dispute  later. 


REVIEW    QUESTIONS 

1.  Gregory  agreed  to  work  for  Mallory  for  nine  months  at  thirty  dollars 
a  month,  payable  at  the  end  of  his  employment.  Two  weeks  before  the  work 
was  to  begin,  Mallory  informed  Gregory  that  he  did  not  need  him.  What 
can  Gregory  do  about  this? 

2.  The  White  Sox,  a  Chicago  baseball  club,  contracted  with  Whitney,  a 
noted  pitcher,  agreeing  to  pay  him  $12,000  for  the  next  season's  playing,  and 
Whitney  accepted  this  agreement.  Before  the  season 'opened  he  made  a  new 
contract  with  another  club  at  a  higher  salary,  and  refused  to  play  with  the 
White  Sox.     What  can  the  White  Sox  do  about  this? 

3.  Jordan  employed  Wright  to  renovate  and  cleanse  the  rugs  and 
carpets  of  his  hotel  for  a  certain  sum.      Wright  called  for  and  obtained  them 


68  DISCHARGE  OF   CONTRACTS 

and  took  them  to  his  place  of  business  and  began  work  upon  them,  but  before 
he  was  half  done  Jordan  told  him  he  need  not  clean  the  others,  as  he  was 
about  to  sell  the  hotel.  As  Wright  had  gone  to  the  trouble  to  get  them  from 
the  hotel  and  had  been  at  expense  in  employing  an  assistant  for  the  entire 
work,  he  went  ahead  and  cleaned  them  all,  and  redelivered  them  to  Jordan, 
who  had  not  sold  as  he  expected.  Jordan  refused  to  pay  anything  and  Wright 
sued  him.     How  much,  if  anything,  can  he  collect? 

4.  By  a  valid  contract  Ames  promised  Bates  to  paint  him  a  picture  to  be 
delivered  at  Bates'  public  gallery  at  a  certain  date.  A  month  before  that  date 
Ames'  arms  were  permanently  paralyzed.  Bates  did  his  best  to  find  some  one 
else  who  could  paint  a  suitable  picture  to  take  the  place  of  Ames'  work,  but 
failed,  Ames  being  the  best  artist  in  America.  The  agreed  price  for  painting 
the  picture  was  $4000,  and  on  account  of  its  absence  the  exhibition  was  a 
failure  and  Bates  lost  $3000.  Bates  sued  Ames  for  $3000,  and  Ames  sued 
Bates  for  $4000,  claiming  that  it  had  become  impossible  for  him  to  perform  his 
conditions  under  the  contract.     Who  is  in  the  right?     Why? 

5.  Morgan  employed  Moore  to  clean  his  sidewalks  for  the  winter,  prom- 
ising to  pay  him  $3.00  each  time  it  was  necessary  to  clean  them.  Moore 
cleaned  them  sixteen  times  and  then  secured  a  permanent  position  and  refused 
to  continue  his  work.  It  was  necessary  for  Morgan  to  employ  another  man 
at  $4.00  for  each  of  ten  additional  cleanings,  and  he  refused  to  pay  Moore 
anything,  claiming  that  Moore  had  broken  his  contract  and  that  this  excused 
him  from  any  further  performance  on  his  part.  Moore  sued  him  for  $64.00. 
Can  he  recover? 


CHAPTER  X 

REMEDIES 

94.  Purpose  of  Remedies.  It  has  long  been  the  boast  of 
our  law  that  under  it  there  is  provided  a  redress  for  every  wrong. 
The  legal  means  which  the  law  uses  for  this  purpose  are  called 
its  remedies.  In  case  the  wrong  is  a  public  one,  it  is  called  a 
crime,  and  its  punishment  is  provided  by  the  criminal  law. 
Commercial  law,  however,  is  directed  particularly  to  the  rights 
and  injuries  of  individuals  arising  out  of  contracts.  The  rem- 
edies provided  for  injuries  to  these  rights  are  called  civil  remedies. 
These  are  always  secured  through  the  formality  of  "a  suit  at  law," 
for  it  is  a  maxim  of  the  law  that  "No  man  shall  be  condemned 
unheard,"  and  that  "Every  man  has  his  day  in  court." 

95.  Legal  Steps.  The  following  are  the  formal  steps  which 
make  up  "a  suit  at  law,"  and  enable  a  party  who  has  been 
civilly  wronged,  whether  by  breach  of  contract  or  otherwise,  to 
recover  his  damages: 

1.  Summons,  4.     Judgment,  6.     Levy, 

2.  Pleadings,  5.     Execution,  7.     Sale. 

3.  Trial, 

96.  Summons.  The  first  step  is  to  secure  from  the  clerk 
of  the  court  a  summons,  *  and  have  it  served  upon  the  party  whom 
one  wishes  to  sue,  called  the  defendant  in  the  action.  This  sum- 
mons gives  the  defendant  notice  of  the  commencement  of  the 
law-suit,  and  of  the  day,  place,  and  hour  of  trial,  that  he  may 
have  the  opportunity  to  be  present  and  make  his  defense. 

97.  Pleadings  are  the  written  or  oral  statements  of  the 
parties,  to  the  court,  describing  the  nature  of  their  claims. 
Copies  are  usually  required  to  be  furnished  to  the  opponents  so 
that  they  may  know  on  what  matters  to  prepare  for  the  trial. 

*In  many  states  the  clerk  of  court  no  longer  issues  the  summons,  but  it 
is  drawn  up  and  signed  by  any  lawyer,  being  deposited  with  the  clerk  of 
court  only  after  it  has  been  served  on  the  defendant.^ 

69 


70  REMEDIES 

98.  The  trial  is  conducted  by  a  regular  and  well  understood 
code  of  rules,  each  party  being  allowed  at  the  proper  time  to  offer 
evidence  in  his  own  behalf.  The  person  who  began  the  law-suit 
is  called  the  plaintiff,  or  complainant,  and  he  must  prove  his  side 
of  the  case  by  the  weight  of  evidence.  If  the  testimony  appears 
to  be  balanced,  the  suit  will  be  dismissed,  for  he  who  sues  another 
must  always  prove  his  claim.  Thus  if  the  law-suit  be  one  in 
which  a  debtor  is  made  the  defendant  and  the  action  bf  started 
to  collect  the  debt,  the  trial  begins  with  the  presumption  that 
the  defendant  owes  nothing,  and  the  plaintiff  must  overcome 
this  presumption  by  producing  more  evidence  to  the  effect  that 
he  does  owe  it  than  the  defendant  produces  that  he  doss  not. 

99.  Judgment.  If  the  case  be  heard  by  a  jury  its  decision 
is  called  a  "verdict."  The  verdict,  when  "entered"  upon  the 
records  of  the  court  is  called  a  judgment.  The  judgmv^nt  varies 
according  to  the  relief  sought.  It  is  generally  expressed  in  terms 
of  money,  since  money  is  usually  the  best  measure  of  dair>ages 
for  a  wrong.  When  a  judgment  is  entered  by  a  court  of  record* 
it  usually  becomes  a  lien  on  the  real  estate  owned  by  the  defend- 
ant within  the  county.  This  means  merely  that  the  plain- 
tiff can  collect  his  claim  out  of  the  real  estate,  if  the  defendant 
refuses  to  pay  him  in  money,  and  that  it  makes  no  difference 
even  if  the  defendant  sells  the  real  estate,  because  the  judgment 
continues  to  be  a  lien  upon  all  the  real  estate  which  the  defendant 
owned  in  the  county  when  it  was  rendered,  until  it  is  paid. 

When  the  judgment  is  rendered  the  legal  steps  have  proved 
of  little  actual  satisfaction  to  the  plaintiff,  for  the  debtor  still 
owes  him  and  he  has  merely  substituted  the  judgment  for  the 
original  evidence  of  the  debt.  The  law,  however,  provides  a 
manner  in  which  a  judgment  can  be  collected,  provided  the 
debtor  has  any  property  not  exempt.  (See  table  of  exemptions 
in  appendix.)  This  step  is  not  applicable  except  when  the  debt 
has  been  reduced  to  a  judgment,  for  only  by  following  the  three 
preliminary  legal  steps  can  it  be  fully  determined  that  no  injus- 
tice is  being  done  and  that  the  debtor  actually  owes  the  debt. 

*  Courts  of  record  are  those  whose  acts  and  judicial  proceedings  are 
required  by  law  to  be  enrolled  and  preserved  for  a  perpetual  memorial.  Inferior 
courts  such  as  justice  courts,  and  in  some  states,  municipal  or  city  courts, 
are  not  courts  of  record. 


REMEDIES  71 

At  the  point  where  judgment  is  rendered  the  steps  taken  have 
been  to  fix  the  liability  with  certainty;  the  remaining  steps  are 
provided  as  a  means  of  realizing  upon  that  established  liability. 

100.  Execution.  This  is  an  order  issued  by  the  court  to  its 
executive  officer  (constable  or  sheriff),  directing  him  to  seize 
the  property  of  the  debtor  and  convert  it  into  cash,  that  the 
judgment  may  be  paid.  The  execution  is  usually  first  served 
upon  the  debtor,  by  reading  it  to  him,  with  a  demand  made  upon 
him  by  the  officer  for  either  cash  or  property  with  which  to  satisfy 
it. 

101.  Levy.  In  case  the  debtor  refuses  or  neglects  to  turn 
over  property  in  satisfaction  of  the  execution  when  it  is  served 
upon  him,  the  officer  may  seize  any  property,  not  exempt,  that 
he  may  find  belonging  to  the  debtor.  This  is  called  "making  a 
levy."  Property  so  seized  is,  after  being  advertised  according 
to  law,  exposed  for  sale,  usually  at  auction  to  the  highest  bidder. 
The  proceeds  are  first  applied  in  satisfaction  of  the  costs  and 
expenses  of  the  suit  and  of  the  levy,  then  to  the  claim  itself,  after 
which,  anything  remaining  is  turned  back  to  the  debtor. 

102.  Exemptions.  Not  all  property  owned  by  the  debtor 
is  subject  to  levy  under  an  execution.  The  several  states  have 
passed  statutes  called  "exemption  laws,"  by  the  terms  of  which 
a  debtor  may,  in  any  event,  retain  certain  of  his  property.  This 
is  to  prevent  the  individual  from  being  deprived  of  the  necessities 
of  life,  or  of  the  resources  by  which  these  necessities  may  be 
obtained,  so  as  to  be  in  danger  of  becoming  a  public  charge.  As 
a  rule,  the  heads  of  families  are  the  most  favored  class  in  this 
regard.  The  exemption  laws  are  entirely  a  matter  of  statutory 
regulation,  and  the  student  should  consult  the  statutes  of  his 
own  state  for  further  details.     (See  appendix.) 

103.  Garnishment.  The  debtor  may  have  no  property 
subject  to  execution,  but  it  may  be  that  a  third  person  owes  him 
on  account,  on  a  note  or  in  some  other  form  of  indebtedness. 
This  person  is  called  in  and  made  to  testify  as  to  the  amount 
of  the  indebtedness.  A  judgment  is  then  rendered  against 
him  for  such  amount  as  may  be  due,  in  favor  of  the  plaintiff. 
This  is  called  "garnisheeing  the  debt  of  another." 


72  REMEDIES 

It  is  also  possible  to  employ  this  means  of  collection  at  the 
commencement  of  the  original  law-suit,  in  order  to  prevent  the 
person  to  be  garnished  from  paying  the  defendant  while  the 
law-suit  is  in  progress. 

Government,  municipal,  and  other  public  employees  are  not 
subject  to  garnishment  of  their  salaries. 

104.  Replevin.  When  a  party  fails  to  perform  that  which 
he  contracted  to  do,  the  law,  as  we  have  seen,  gives  to  the 
injured  party  a  redress,  which  is,  in  nearly  all  cases,  a  money 
damage.  The  law  does  not  usually  compel  a  party  to  perform 
his  contract  literally,  neither  can  he,  as  a  rule,  be  imprisoned  for 
not  doing  so.  There  are  cases,  however,  when  the  law  does  not 
deem  a  money  compensation  a  just  equivalent  for  the  wrong 
suffered.  One  of  these  is  a  case  in  which  the  defendant  unlaw- 
fully takes  and  detains  the  goods  of  another.  The  remedy  for 
this  wrong  is  called  replevin.  The  executive  officer  of  the  court 
takes  possession  of  the  goods,  by  virtue  of  a  statement  of  author- 
ity issued  by  the  court  called  a  writ  of  replevin,  and  if  after  the 
trial  the  judgment  is  in  favor  of  the  plaintiff,  the  actual  goods 
are  delivered  to  him;  but  if  in  favor  of  the  defendant,  the  goods 
are  returned  to  him.  The  scope  of  this  action  has  been  generally 
much  enlarged  by  statute,  until  now  it  embraces  all  cases  where 
the  property  of  another  is  unlawfully  detained,  regardless  of 
whether  the  original  taking  was  lawful.  It  is  certainly,  where 
applicable,  a  wholesome  remedy,  and  without  it  the  law  would 
in  many  cases  fall  far  short  of  giving  complete  redress. 

105.  Attachment.  Before  the  plaintiff  could  go  through 
the  long  formalities  of  a  suit  at  law,  obtain  a  judgment,  and 
secure  an  execution,  the  defendant  might,  if  he  desired  to  do  so, 
put  all  his  property  out  of  his  hands,  or  perhaps  flee  from  the 
state.  In  such  cases  the  court  will  issue  an  attachment.  This 
is  in  effect  reversing  the  order  of  the  steps,  bringing  the  exe- 
cution first,  after  which  comes  the  trial,  judgment,  etc.  A  suit 
can  be  commenced  by  means  of  an  attachment  only  when  the 
plaintiff  will  state  on  oath  before  the  court  that  the  debtor  is 
planning  to  flee  from  the  state,  has  disposed  of  or  threatens  to 
dispose  of  his  property,  or  in  some  other  manner,  specified  by 
statute,  has  acted  or  threatens  to  act  in  such  manner  as  to  make 


REMEDIES  73 

the  plaintiff's  judgment  uncollectible,  unless  the  debtor's  prop- 
erty be  seized  immediately.  It  is  a  grave  thing  to  deprive  a 
man  of  his  property  before  it  is  legally  determined  that  he  is 
indebted  to  the  plaintiff,  and  in  most  states  the  court  will  not 
issue  a  writ  of  attachment,  ordering  the  executive  officer  to  seize 
the  goods,  unless  a  bond  is  filed  with  the  court,  by  which  the 
plaintiff  agrees  that  he  and  his  bondsmen  will  pay  the  defendant 
for  all  the  damage  he  has  suffered,  if  it  should  finally  be  deter- 
mined that  he  did  not  have  a  right  to  the  writ  of  attachment. 

106.  Injunction.  This  is  called  a  negative  remedy.  It  is 
designed  to  prevent  a  prospective  injury  rather  than  to  give 
redress  for  a  wrong  already  committed.  If  a  person  can  prove 
to  the  court  that  some  other  person  is  about  to  do  that  which 
would  be  an  irreparable  injury  to  him,  for  which  money  damages 
would  be  an  inadequate  remedy,  he  can  secure  an  injunction 
against  the  wrong-doer.  This  is  the  order  of  the  court  which 
informs  the  wrong-doer  that  he  must  not  commit  his  threatened 
act,  and  restrains  him  from  committing  it.  If  he  persists  he 
will  then  violate  the  injunction  and  will  be  said  to  be  "in  con- 
tempt of  court,"  for  which  contempt  the  court  will  fine  or 
imprison  him.  Ordinarily  one  cannot  secure  an  injunction  to 
prevent  another  from  breaking  his  contract. 

107.  Specific  Performance.  This  remedy  has  been  previously 
mentioned.  It  is  a  remedy  which  consists  in  the  decision  of  the 
court  that  the  defendant  shall  do  the  particular  act  which  he 
agreed  to  do.  It  has  already  been  stated  that  this  remedy  is 
applicable  in  only  a  few  well  defined  cases,  usually  being  con- 
fined to  contracts  for  the  sale  or  purchase  of  real  estate. 


CHAPTER  XI 
SPECIAL   DEFEI^SES* 


I.  Statute  of 
Frauds 


U.  Statute  of 
Limitations' 


REQUIRES  A  WRITTEN  MEMORANDUM  IN 
CONTRACTS 

1.  For  sale  of  real  property 

2.  For  leases  of  real  property 

3.  When  not  to  be  performed 

within  one  year 

4.  In  consideration  of  marriage 

5.  To  answer  for  debts  or  de- 

faults of  others 

6.  For  sale  of  personal  property 

above  specified  value 

REQUIRES  SUIT  TO  BE  COMMENCED  WITHIN 
SPECIFIED  TIME  UNLESS 

Injury  has  been  fraudulently 

concealed 
Injured  party  has  been  under 

disability 
The  claim  has  been  revived 


III.  Set-off  or  Counterclaim 

IV.  Accord  and  Satisfaction 


108.  ■  Special  Defenses.  Not  only  may  one  who  is  sued  for  a 
breach  of  his  contract  offer  in  defense  the  fact  that  his  breach 
was  caused  by  a  violation  of  duty  on  the  part  of  the  other,  by 
operation  of  law,  or  by  such  impossibility  as  the  law  will  recog- 
nize, which  defenses  have  been  previously  considered,  but  he 
may  offer,  in  defense,  his  rights  under  two  notable  statutes, 
known  as  the  Statute  of  Frauds  and  the  Statute  of  Limitations 
and  generally  adopted  in  all  states,  or  he  may  defend  by  proving 
a  set-off  or  an  accord  and  satisfaction.  These  defenses  are  dis- 
cussed in  the  order  named. 


*So  called   to  distinguish   them   from   the  regular  defenses  previously 
enumerated,  which  go  to  the  merits  of  the  contract. 

74 


SPECIAL   DEFENSES  75 

STATUTE  OF  FRAUDS 

109.  Origin.  The  Statute  of  Frauds  was  a  famous  English 
statute,  enacted  in  the  year  1677,  during  the  reign  of  Charles  II, 
and  declared  to  be  a  statute  "to  prevent  frauds  and  perjuries." 
The  Fourth  and  Seventeenth  sections  of  the  English  statute 
have  been  embodied  in  the  statutes  of  nearly  all  of  our  states, 
with  few  changes. 

110.  Fhirpose.  The  Statute  of  Frauds  provided  that 
certain  classes  of  contract  were  not  enforceable  in  court  unless 
some  note  or  memorandum  in  writing,  signed  by  the  party  to  be 
charged,  or  by  his  agent,  was  presented  to  the  court  as  evidence 
of  the  contract.  This  note  or  memorandum  was  sufficient  if  it 
plainly  indicated  that  it  referred  to  the  contract  between  the 
parties,  and  showed  that  the  party  to  be  charged  with  an  obli- 
gation, had  signed  or  initialed  it. 

The  fact  that  no  such  note  or  memorandum  m  writing  exists 
is  entirely  a  matter  of  defense,  and  if  the  defendant  in  a  law- 
suit does  not  raise  the  point,  he  will  be  deemed  to  have  waived 
his  rights  to  object  to  the  enforcement  of  the  contract  on  this 
ground.  This  is  because  the  contract  is  not  void  if  it  fails  to 
comply  with  the  Statute  of  Frauds,  but  merely  not  enforceable 
if  the  point  be  raised.  The  contract  not  being  void,  the  parties 
may  carry  out  their  oral  obligations  as  they  wish.  Furthermore, 
if  one  party  has  performed  his  part  of  the  contract,  the  other 
party,  by  accepting  the  benefit  of  such  performance,  will  lose 
the  right  to  object  on  the  ground  that  the  contract  was  not  in 
writing.  Thus  it  is  said  that  "performance  by  one  party  takes 
the  contract  outside  the  Statute  of  Frauds." 

111.  Provisions.  The  statute  as  adopted  generally  through- 
out the  United  States  provides  that  the  following  classes  of 
contracts  will  not  be  enforced  by  the  courts  unless  there  be  some 
note  or  memorandum  in  writing  signed  by  the  party  to  be 
charged : 

From  the  Fourth  Section. 

I ,     Contracts  for  the  sale  of  any  interest  in  lands ; 
II.     Leases  of  land  for  more  than  one  year  (with  a  limited 
number  of  exceptions) ; 


76  SPECIAL   DEFENSES 

111.  Contracts  by  their  terms  not  to  be  performed  within 

one  year; 
IV.     Contracts  made  upon  the  consideration  of  marriage, 

except  mutual  promises  of  marriage ; 
V.     Contracts  to  answer  for  the  debt,  default,  or  miscar- 
riage of  another ; 
From  the  Seventeenth  Section. 
VI.     Contracts  for  the  sale  of  goods,  chattels,  or  things  in 

action  for  the  price  of  fifty  dollars  or  more,  unless: 
(a)  The  buyer  receives  a  part  of  the  thing  purchased,  or 
(6)   The  buyer  pays  part  of  the  purchase  price,  or 
(c)  The  sale  be  by  auction. 

112.  The  memorandum.  While  the  statute  provides  only 
for  a  note  or  memorandum  of  the  agreement,  stating  its  essential 
terms,  careful  persons  will  make  a  full  memorandum,  including 
all  the  terms,  the  consideration,  the  parties,  and  the  conditions 
to  be  performed,  and  will  have  it  signed  by  both  parties.  All 
this  is  not  necessary  under  the  wording  of  the  statute,  but  if  it 
be  done  there  can  be  no  question  as  to  the  sufficiency  of  the 
memorandum. 

113.  I.  Contracts  for  sale  of  interests  in  land  are  placed 
within  the  statute  and  its  terms  apply  in  every  detail  to  them. 
Without  such  a  provision,  requiring  that  they  be  evidenced  by 
writing,  fraud  could  easily  be  practiced,  for  with  long  legal 
descriptions  of  land  it  would  be  a  simple  matter  for  a  shrewd, 
unscrupulous  person  to  mislead  another  by  his  verbal  statements. 

EXAMPLE 

A,  the  owner  of  land,  orally  agreed  with  B  to  convey  it  to  B  upon  B's 
paying  the  agreed  price.  B  tendered  the  price,  which  A  refused  to  accept, 
saying  that  he  had  changed  his  mind.  When  B  sued  A  for  this  violation  of 
the  agreement,  the  court  declared  that  B  had  no  legally  enforceable  rights 
against  A  because  no  written  memorandum  of  their  agreement  existed.  Shel- 
ton  vs.  Cookay,  138  Mo.  App.  389. 

114.  II.  Leases  of  land  for  more  than  one  year  were  not 
enforceable  under  the  English  Statute  of  Frauds  unless  evidenced 
by  a  memorandum  in  writing.  The  same  provision  is  adopted 
in  many  states  of  the  United  States.     A  few  states  have  modified 


SPECIAL   DEFENSES  77 

this  restriction  so  that  it  operates  only  in  case  of  leases  for  more 
than  three  years.  In  applying  these  restrictions  the  courts 
generally  compute  the  year  (or  three  years)  from  the  date  of 
making  the  lease,  though  a  few  states  begin  the  computation  at 
the  time  the  tenant  is  entitled  to  enter  into  possession  of  the  land. 
Unless  the  statute  states  that  the  term  begins  at  the  time  of  the 
date  of  the  lease,  the  common  law  rule  must  be  applied,  which 
rule  is  that  the  term  begins  at  the  date  of  making  the  contract. 

EXAMPLE 

On  March  first,  A  orally  agreed  to  rent  B's  farm  for  a  period  of  two  years 
beginning  April  first,  and  to  pay  B  $500  annually.  Nothing  was  paid,  how- 
ever, and  later  A  refused  to  accept  the  premises.  When  B  sued  him  for 
violating  the  contract  A  said  that  he  did  not  have  to  take  the  farm  because  of 
the  Statute  of  Frauds.  The  court  upheld  him  in  his  refusal  to  continue  the 
contract  on  this  ground  as  the  law  of  the  state  required  contracts  for  leases  of 
land  for  more  than  one  year  to  be  in  writing.  Barlow  vs.  Wainwright,  22 
Vt.  88. 

115.  ni.     Contracts  not  to  be  performed  within  a  year  are 

those  contracts  which  by  their  terms  cannot  possibly  be  per- 
formed within  that  time.  These  must  be  in  writing,  as  provided 
by  this  statute.  If  the  contract  be  one  for  the  performance  of 
services  for  an  indefinite  time,  or  is  based  upon  a  condition 
which  may  happen  within  a  year,  or  is  a  contract  which  one 
party,  though  not  the  other,  may  perform  within  a  year,  no  writ- 
ten memorandum  is  necessary. 

EXAMPLE 

Drew  purchased  some  lots  from  Wiswall  under  an  oral  agreement  that  as 
soon  as  he  built  a  house  Wiswall  would  construct  a  street.  He  built  the  house 
but  Wiswall  refused  to  construct  the  street,  claiming  that  the  work  was  not 
done  in  one  year  and  that  the  agreement  was  unenforceable  because  not  in 
writing.  The  court  decided  that  written  evidence  was  not  necessary,  because 
the  agreement  could  have  been  performed  within  a  year,  even  though  it  was 
not  so  performed.     Drew  vs.  Wiswall,  183  Mass.  554. 

116.  rV.  Contracts  in  consideration  of  marriage  are  seldom 
made  in  modern  business.  They  were  formerly  made  with  the 
prospective  groom  by  the  parent,  guardian,  or  relative  of  the 
prospective  bride,  and  by  them  the  former  agreed  to  pay,  or 
settle  upon,  the  bride  a  certain  amount  of  money  at  the  time  of 
the  marriage.  Such  agreements  were  not  enforceable  unless 
they  were  in  writing. 


78  SPECIAL   DEFENSES 

At  present  such  contracts  are  rarely  made,  except  in  an  occasional  instance 
in  which  a  prospective  husband  promises  to  settle  a  certain  amount  of  money 
on  his  wife.  This  is  called  an  ante-nuplial  agreement  and  must  be  evidenced 
by  writing.  On  the  other  hand,  the  mutual  exchange  of  promises  to  marry 
need  not  be  evidenced  by  writing,  and  such  a  promise,  if  broken,  will  give 
cause  for  an  action  for  breach  of  promise  without  any  written  proof. 

EXAMPLE 

John  S.  Rowell  promised  to  settle  a  specified  amount  of  money  on  his 
intended  bride,  provided  she  would  marry  him.  The  agreement  was  never 
reduced  to  writing,  and  when  after  their  marriage  the  wife  attempted  to  enforce 
the  contract,  the  court  declared  that  she  could  not  do  so  because  there  was  no 
memorandum  in  writing.  This  contract  did  not  come  within  the  exception 
because  the  consideration  was  not  the  mutual  exchange  of  promises  to  marry, 
but  the  payment  of  money.     Rowell  vs.  Barber,  142  Wis.  304. 

117.  V.  Contracts  to  answer  for  the  debt  or  default  of 
another.  These  contracts  are  of  importance  to  every  business 
man.  Frequently  one  presses  a  man  who  owes  him  for  payment 
of  an  account,  and  satisfies  himself  with  the  promise  of  a  third 
person  to  pay  the  debt,  if  the  debtor  does  not.  Yet  such  an 
agreement  cannot  be  enforced  unless  it  is  in  writing,  and  not  even 
then  unless  a  consideration  be  given  the  guarantor.  Or  it  may 
be  that  Ames  goes  to  a  store  with  Bates,  who  wishes  to  buy 
goods,  and  says  to  the  store-keeper,  "This  is  Bates,  who  wishes 
to  buy  some  goods.  If  he  does  not  pay  you,  I  will."  The 
promise  of  Ames  cannot  be  enforced  if  it  is  not  in  writing.  If, 
however,  in  the  foregoing  example,  Ames  had  said,  "Let  Bates 
have  what  he  wishes,  and  charge  the  goods  to  my  account," 
his  promise  would  be  enforceable,  because  then  the  merchant 
would  have  sold  the  goods  on  Ames'  sole  credit,  and  Ames' 
promise  would  not  have  been  to  answer  for  the  debt  of  another. 

EXAMPLE 

The  foreman  of  a  railroad  construction  party  arranged  with  a  hotel  keeper 
to  supply  his  men  with  lodging,  promising  that  he  would  see  that  the  bills 
were  paid,  if  the  men  did  not  themselves  pay.  The  men  failed  to  pay  and 
when  the  hotel  keeper  sued  the  foreman  the  court  refused  to  enforce  the  prom- 
ise because  of  the  statute  of  frauds.  Obert  Brewing  Company  vs.  Wabash 
Ry.  Company,  129  S.  W.  991. 

118.  VI.  Contracts  for  the  sale  of  goods.  This  provision 
of  the  Statute  of  Frauds  originally  applied  to  cases  in  which  the 


SPECIAL   DEFENSES  79 

value  of  goods  was  more  than  fifty  dollars.  Some  states  do  not 
have  this  portion  of  the  statute.*  In  adopting  the  old  statute 
some  states  have  increased  the  limit  to  $200,  f  while  a  few  have 
decreased  it  to  $30.  J  The  Uniform  Sales  of  Goods  act,  which 
we  shall  discuss  later  in  connection  with  the  sales  of  personal 
property,  places  the  limit  at  $50,  and  has  been  adopted  in  some 
states. 

In  connection  with  this  provision  of  the  Statute  of  Frauds 
it  is  to  be  noticed  that  there  are  four  means  by  which  a  contract 
for  the  sale  of  goods  in  excess  of  the  statutory  amount  may  be 
made  enforceable,  the  first  being  to  have  a  note  or  memorandum 
in  writing.  The  other  means  are  (a)  that  the  buyer  shall  have 
received  a  part  of  the  thing  purchased,  or  (b)  that  the  buyer 
shall  have  paid  a  part  of  the  purchase  price,  or  (c)  that  the  sale 
shall  have  been  by  auction.  In  the  last  three  cases,  no  note  or 
memorandum  need  exist,  to  make  the  contract  enforceable. 

1.  Millard  ordered  a  quantity  of  clapboards  from  Cooke,  agreeing  to  pay 
$400.  Cooke  immediately  began  preparing  the  boards,  dressing  them  down 
and  putting  them  in  condition  for  delivery.  Millard  refused  to  accept  the 
boards,  and  when  Cooke  sued  him  he  defended  on  the  ground  that  there  was  no 
memorandum  in  writing.  The  court  refused  Cooke  recovery.  Cooke  vs. 
Millard,  65  N.  Y.  359. 

2.  A  ordered  a  bill  of  goods  amounting  to  several  hundred  dollars  from 
B,  paying  five  dollars  down  when  the  order  was  given.  A  later  attempted 
to  get  out  of  his  contract  obligation  on  the  ground  that  he  had  signed  no 
memorandum,  but  the  court  said  that  the  part  payment  made  writing  unneces- 
sary.    Weis  vs.  Hudnut,  115  Ind.  525. 

STATUTE  OF  LIMITATIONS 

119.  Object.  After  the  lapse  of  a  reasonable  period  the 
law  will  not  offer  its  aid  to  an  injured  party.  The  law  will  not 
help  a  man  who  has  "slept  on  his  rights"  too  long.  Statutes 
have  been  adopted  in  the  various  states  naming  a  limit  of  time 


*  Alabama,  Arizona,  Delaware,  Illinois,  Kansas,  Kentucky,  Louisiana, 
New  Mexico,  North  Carolina,  Ohio,  Pennsylvania,  Rhode  Island,  Tennessee, 
Texas,  West  Virginia,  Virginia. 

t  California,  Idaho,  Montana,  and  Utah. 

t  Maine,  New  Jersey,  Missouri,  Arkansas;  it  is  $33  in  New  Hampshire; 
$40  in  Vermont;  and  applies  to  all  contracts  regardless  of  value  in  Florida 
and  Iowa.  In  the  majority  of  states  the  limit  of  value  is  §50,  as  under  the 
English  statute. 


80  SPECIAL   DEFENSES 

in  which  law-suits  to  recover  d'amages  must  be  brought,  if  at  all. 
These  statutes  are  frequently  called  statutes  of  repose,  for  after 
the  stated  time  the  right  of  action  is  at  rest  so  far  as  the  law  is 
concerned.  Thereafter  only  a  moral,  but  not  a  legal,  obligation 
continues. 

120.  Tables  of  limitation.  In  adopting  these  statutes  of 
limitation,  or  repose,  the  various  states  selected  different 
periods  of  time  for  different  kinds  of  actions.  The  principal 
classes  are  actions  on  open  accounts,  demands  on  written  con- 
tracts, and  demands  on  judgments.  There  is  also  a  difference 
in  case  the  contract  be  under  seal,  in  which  event  the  period  of 
limitation  is  usually  longer  than  on  a  simple  contract.  After 
the  expiration  of  the  time  in  which  the  action  must  be  brought, 
if  at  all,  the  claim  is  said  to  be  "barred  by  the  Statute  of  Limi- 
tations," or  "outlawed." 

At  this  point,  examine  the  "Tables  of  Limitation,"  in  the 
appendix. 

121.  When  time  begins  to  run.  Generally  the  time  men- 
tioned in  the  statute  begins  to  run  from  the  very  first  day  on 
which  an  action  could  properly  have  been  brought,  even  though 
the  party  injured  did  not  know  that  he  had  such  a  right  of  action 
until  long  afterward.  In  a  running  account,  as  for  merchandise, 
and  on  a  note  on  which  some  payments  have  been  made,  the 
time  begins  to  run  from  the  date  of  the  last  payment  or  purchase. 
The  payment  of  interest  will  have  the  effect  of  keeping  a  debt 
alive  for  the  full  statutory  time  after  payment.  An  important 
distinction  is  also  observed  in  courts  of  equity,  which  have 
declared  that  fraud  of  the  wrongdoer,  preventing  the  discovery 
of  the  right  of  action,  will  prevent  the  time  from  beginning  to 
run  until  the  fraud  is  discovered. 

EXAMPLES 

1.  Ames  owes  Bates  $200  on  a  note  due  on  August  1,  1904.  The  statute 
of  limitations  on  notes  is  six  years  in  their  state.  In  December,  1911,  Bates 
sues  Ames  on  this  indebtedness.  Ames  claims  that  the  note  is  outlawed,  but 
Bates  shows  that  Ames  paid  interest  up  to  January,  1909.  This  prevents  the 
statute  of  limitations  from  beginning  to  run  until  that  time. 

2.  Call  owes  Dale  for  groceries,  some  having  been  purchased  in  1905, 
some  in  1906  and  some  in  1907.  Dale  sues  Call  for  the  entire  account  in  1912, 
the  statute  of  limitations  in  his  state  on  such  accounts  being  six  years.     Call 


SPECIAL   DEFENSES  81 

claims  that  a  part  of  the  account  is  outlawed,  but  this  is  not  true  because  the 
statute  only  begins  to  run  from  the  date  of  the  last  item. 

122.  Saving  clauses.  There  are  certain  provisions,  called 
"saving  clauses,"  which  provide  excuses  in  some  instances  for 
not  bringing  the  action  within  the  time  limit.  If  the  person 
injured  is  an  infant,  an  insane  person,  or  a  person  imprisoned; 
or  if  the  wrong-doer  is  absent  from  the  state,  the  law  will  excuse 
failure  to  bring  the  action  within  the  time  of  limitation.  These 
excuses  are  called  "disabilities,"  and  the  person  who  objects  to 
his  claim  being  outlawed  on  any  of  these  grounds  is  said  to  be 
laboring  under  a  disability. 

As  a  rule,  if  the  disability  exists  at  the  time  the  plaintiff 
begins  to  hcve  the  right  to  bring  his  law-suit,  the  statute  does  not 
begin  to  run  until  the  disability  has  been  removed.  Except  in 
case  of  one's  absence  from  the  state,  which  inures  to  the  benefit 
of  the  other  party,  all  the  disabilities  extend  only  to  protect 
the  person  disabled. 

The  Statute  of  Limitations  has  no  effect  on  actions  in  which 
the  state  sues  in  its  sovereign  capacity.  Thus  a  state  does  not 
lose  its  right  of  action  for  debt  on  delinquent  taxes,  by  the  lapse 
of  time. 

f  EXAMPLES 

1.  Perry  maintained  a  cess-pool  on  his  land  for  a  number  of  years, 
without  protest  from  the  state  authorities.  It  was  admitted,  however,  that 
the  state  could  have  ordered  him  to  remove  it  at  any  time  on  the  ground  that 
it  was  a  public  nuisance.  After  many  years  the  state  brought  an  action  for 
this  purpose  and  Perry  defended  on  the  ground  that  the  Statute  of  Limitations 
barred  the  action.  The  court  declared  that  the  state  could  maintain  its  action. 
Commonwealth  vs.  Perry,  139  Mass.  198. 

2.  A  girl  six  years  of  age  suffered  an  injury  by  another  person  taking 
possession  of  her  land.  Later  she  became  of  legal  age  and  commenced  an 
action  to  recover  possession  of  the  land.  The  wrong-doer  defended  on  the 
ground  that  any  claim  which  she  might  have  had  was  outlawed.  The  court 
allowed  recovery  because  the  girl  had  been  under  disability  and  the  statute 
of  limitations  did  not  affect  her  rights  during  that  period.  Bunce  vs.  Wolcott, 
2  Conn.  27. 

123.  Revival  of  claims.  Even  though  the  lapse  of  time 
under  the  Statute  of  Limitations  may  have  barred  the  claim, 
it  is  possible  for  the  parties  to  revive  any  right  which  originally 
existed,  by  an  express  promise  to  do  so,  and  no  consideration  is 
needed  for  this  promise.     If  the  debtor,  or  person  who  may 


82  SPECIAL   DEFENSES 

claim  the  benefit  of  the  lapse  of  time  under  the  statute,  makes 
such  an  express  promise  to  revive  the  debt,  or  makes  a  payment 
on  the  debt,  the  claim  is  revived  and  the  Statute  of  Limitations 
again  begins  to  run  from  the  date  of  the  new  promise.  In  a  few 
states,  the  promise  to  renew  the  debt  must  be  in  writing. 

EXAMPLE 

Ames  owes  a  debt  to  Bates,  which  is  allowed  to  run  until  it  is  outlawed  by 
the  statute.  After  this  Ames  writes  to  Bates,  acknowledging  the  debt,  and 
stating  that  he  would  pay  it  as  soon  as  he  could.  This  revives  the  debt  and 
the  statute  begins  running  anew. 

Payment  on  a  debt  after  it  is  outlawed  revives  the  debt. 

SET-OFF  AND   COUNTERCLAIM 

124.  Set-Off  and  Counterclaim.  When  suit  is  brought 
against  a  debtor,  he  may,  in  the  same  suit,  defend  on  the  ground 
that  the  person  who  is  the  plaintiff  in  the  suit  is  actually  indebted 
to  him,  the  defendant.  Litigation  is  often  simplified  in  this 
manner,  for  the  validity  of  the  claims  of  both  parties  may  be  then 
tested  in  the  same  suit.  The  party  whose  claim  is  the  larger 
will  be  awarded  the  judgment  for  the  amount  of  the  difference 
in  the  claims.  If  the  claim  of  the  defendant  is  a  definitely  ascer- 
tained amount,  his  defense  is  called  a  set-off.  If  the  defendant's 
claim  is  based  on  damages  which  must  be  ascertained  the  defense 
is  called  a  counterclaim.  In  some  states  the  latter  is  called 
a  right  of  recoupment. 

EXAMPLES 

1.  A  owed  B  the  sum  of  $100  on  a  contract  to  repair  a  building.  When 
B  brought  a  suit  to  recover  this  amount,  A  showed  that  the  contract  had  not 
been  fulfilled  according  to  its  terms  and  that  he  had  been  obliged  to  pay  out 
$125  to  repair  the  damage  which  B  had  caused  him.  The  court  allowed  A 
to  have  judgment  against  B  for  $25.  McGuire  vs.  Bransfield,  147  111. 
App.  541. 

2.  Ames  owes  Bates  fifty  dollars  for  groceries.  Bates  owes  Ames  twenty 
dollars  for  coal.  If  Bates  sues  Ames,  Ames  may  defend  by  way  of  set-oflf  and 
Bates  can  recover  judgment  only  for  thirty  dollars. 

3.  A  agreed  to  work  as  a  salesman  for  B  on  a  salary  and  commission, 
devoting  all  of  his  time  to  B's  work.  As  a  matter  of  fact,  A  carried  a  side-line 
of  goods,  which  he  sold  for  his  own  benefit,  and  B  discharged  him  on  learning 
this  fact.  A  sued  B  for  his  salary  and  commissions,  but  B  was  allowed  to 
counterclaim  and  recoup  for  A's  lack  of  diligence  in  seeking  his  own  customers, 
and  for  the  time  which  he  had  devoted  to  this  side-line.  Alberts  vs.  Stearns, 
50  Mich.  350. 


SPECIAL   DEFENSES  83 

125.  Accord  and  Satisfaction.  A  fourth  special  defense  to 
a  suit  for  the  violation  of  a  contract  may  be  set  up,  called  an 
accord  and  satisfaction.  When  there  has  been  a  breach  of 
contract  on  the  part  of  one  party  the  parties  may  agree  on  what 
the  one  in  default  is  to  be  required  to  do  or  pay  by  way  of  settle- 
ment. This  is  a  new  agreement,  and  if  fulfilled  it  is  a  complete 
discharge  of  the  original  contract  and  no  further  action  can  be 
maintained  on  the  original  contract.  If,  however,  it  is  not 
carried  out,  the  aggrieved  party  may  sue  the  other  on  the  original 
contract,  and  may  recover  all  the  damages  which  he  can  prove, 
even  though  they  be  in  excess  of  the  amount  agreed  upon  in  the 
accord.  The  agreement  to  accept  a  stated  sum,  or  a  specified 
act,  as  compensation  for  breach  of  a  contract  is  called  the  accord ; 
the  carrying  out  of  the  terms  is  the  satisfaction.  Both  elements 
must  concur  to  complete  the  defense. 

PRACTICAL   SUGGESTIONS 

Don't  make  oral  contracts  when  written  ones  are  required  by  law,  because 
you  thereby  furnish  the  other  party  with  a  defense  for  his  refusal  to  perform. 

Don't  refuse,  however,  to  perform  an  oral  contract,  after  the  other  party 
has  fully  performed  his  part,  evert  though  it  be  a  contract  required  to  be 
written,  because  full  performance  by  one  party  makes  the  defense  of  the  Statute 
of  Frauds  inapplicable. 

Don't  postpone  collections  until  they  are  outlawed,  because  they  then 
cease  to  be  legally  collectible. 

It  is  unwise  to  take  advantage  of  the  Statute  of  Limitations  to  escape 
a  claim  which  you  should  pay,  because  you  will  thereby  destroy  your  own  credit 
in  the  community,  even  though  you  may  have  a  legal  defense. 

Try  to  collect  interest  or  small  payments  on  all  bad  accounts,  because 
such  payments  prevent  the  claim  being  outlawed,  and  the  debtor  may  some  day 
inherit  property  and  the  claim  thus  become  collectible. 

It  is  often  wise  to  sue  on  debts  which  are  nearly  outlawed,  because  you  may 
thereby  add  many  years  to  their  collectibility. 

It  is  futile  to  sue  a  man  if  you  owe  him  as  much  as  he  owes  you,  because 
his  right  of  set-off  against  you  is  as  valuable  as  your  claim  against  him. 

Don't  make  verbal  contracts  when  you  could  as  well  make  written  ones. 
There  is  less  opportunity  for  dispute  later. 

REVIEW    QUESTIONS 

L  Miss  Withers  sued  Ward  Richardson  for  $10,000  damages 'for  his 
failure  to  marry  her,  claiming  that  he  had  asked  her  to  be  his  wife,  and  that 
she  had  accepted,  but  that  he  had  later  married  another  woman.     Richardson 


84  SPECIAL   DEFENSES 

admitted  all  these  things,  but  defended  himself  on  the  following  grounds: 
(1)  That  the  consideration  of  his  promise  was  the  marriage  of  the  parties,  and 
that  there  was  no  memorandum  of  the  agreement  in  writing;  (2)  that  they 
had  not  intended  to  be  married  until  three  years  later,  and  (3)  that  he  and  Miss 
Withers  were  first  cousins  and  that  marriages  between  first  cousins  were 
illegal  and  void  in  their  state.     VVele  any  of  these  defenses  valid?     Why? 

2.  Hastings  offered  Bruce  $200  for  commission  if  Bruce  would  find  a 
purchaser  for  Hasting's  200-acre  farm  at  a  specified  price.  Bruce  within 
two  weeks  introduced  to  Hastings  a  purchaser  who  offered  to  buy  the  farm  at 
the  price,  but  Hastings  unreasonably  refused  to  sell  to  him  on  the  ground  that 
the  proposed  purchaser  had  once  been  divorced.  Bruce  then  sued  for  his 
commissions  of  $200,  and  Hastings  defended  on  the  ground  that  the  agreement 
between  them  was  one  for  the  sale  of  real  estate  and  that  there  was  no  written 
memorandum.     Was  this  a  valid  defense?     Why? 

3.  Bernier  sued  Cabot  for  wages  for  15  months  at  S50  a  month.  Cabot 
defended  on  the  ground  that  Bernier  had  agreed  to  work  for  him  for  two  years 
and  had  promised  not  to  leave  his  employ  at  any  time  during  that  period, 
but  that  he  had  left  at  the  end  of  15  months,  damaging  Cabot  to  the  extent 
of  $300,  for  which  Cabot  claimed  a  right  of  set-off  and  counterclaim.  Would 
it  make  any  difference  whether  this  agreement  was  in  writing?     Why? 

4.  Ferris,  a  negro,  in  1872,  sued  Henderson  for  wages  due  him  for  work 
during  the  years  of  1866  and  1867,  claiming  that  Henderson  had  compelled 
him  to  work  for  him  during  that  period  as  a  slave,  fraudulently  keeping  him 
in  ignorance  of  the  fact  that  slavery  had  been  abolished  by  a  constitutional 
amendment  in  Depember,  1865.  Henderson  defended  on  the  ground  that 
such  actions  must  be  brought  within  four  years.  What  further  would  Ferris 
have  to  show  in  order  to  recover?     Why? 

5.  William  Jackson  died  in  1886  and  left  his  house  to  his  son,  Robert 
Jackson,  who  was  born  in  1870,  and  his  farm  to  another  son,  George  Jackson, 
who  was  born  in  1885.  In  1886  Conrad  Johnson  went  upon  the  farm  and  occu- 
pied both  it  and  the  house  continuously  as  his  own  until  1914  when  Robert 
Jackson  sued  him  to  recover  his  house  and  George  Jackson  sued  him  to  recover 
his  farm.  Johnson  defended  on  the  ground  that  by, the  statute  of  limitations 
in  his  state  such  actions  to  recover  real  estate  must  have  been  brought  within 
twenty  years  after  he  first  wrongfully  took  possession.  Were  the  claims  of 
either,  or  both,  the  Jacksons  outlawed?     Why? 

6.  What  length  of  time  is  allowed  in  which  to  bring  suit  in  your  state, 
on  open  account?  on  a  promissory  note?  on  a  debt  which  the  court  has 
declared  to  be  due  you? 


CHAPTER  XII 
MISCELLANEOUS  MATTERS 

126.  Two  Rules  of  Evidence.  Rules  of  evidence  are  ordi- 
narily of  interest  to  lawyers  only.  There  are,  however,  two 
rules  as  to  the  manner  in  which  facts  may  be  proved  which  are 
of  the  greatest  importance  to  the  man  of  business,  and  which, 
unfortunately,  are  not  generally  understood  by  him.  The  first 
of  these  rules  is  called  the  Parol  Evidence  Rule,  and  the  second, 
the  Rule  Regarding   Transactions  with  Persons   Now  Deceased. 

127.  Parol  Evidence  Rule.  This  is  a  rule  of  evidence  in 
force  in  every  court  where  parties  seek  to  prove  their  claims 
against  others.  It  is  in  substance,  that  if  a  contract,  or  other 
agreement  stating  the  rights  of  the  parties,  has  been  reduced  to 
writing,  the  writing  only  is  to  be  taken  as  the  evidence  of  what 
the  parties  intended,  and  the  contract  which  they  created. 
Oral  evidence  is  not  considered  in  so  far  as  it  changes  or  modifies 
the  terms  of  the  written  instrument.  The  only  points  on  which 
oral  evidence  can  be  used  at  all  in  court  in  such  cases,  are  points 
on  which  the  written  document  is  ambiguous  and  further  evi- 
dence is  necessary  to  show  what  the  parties  meant.  The 
exceptions  to  this  rule  are  too  technical  to  be  considered  here, 
but  it  is  of  the  greatest  importance  for  the  business  man  to  know 
that  when  he  has  put  his  contract  into  writing,  the  writing  will 
be  taken  by  the  courts  to  represent  the  contract  which  he  entered 
into,  and  he  cannot  tell  the  court  later  that  he  left  something 
out,  or  intended  to  put  something  else  in.  The  student  has  been 
advised  in  the  chapters  on  contracts,  to  make  his  contracts  in 
writing  because  there  is  less  opportunity  for  dispute  later.  Not 
only  should  he  do  this,  but  he  should  be  careful  that  the  written 
contract  is  clear,  and  unambiguous,  and  that  it  contains  the 
precise  terms  of  the  contract  which  he  intended  to  create  and  no 
others.  If  he  does  this,  he  will  find  that  disputes  and  troubles 
growing  out  of  contracts  will  in  a  large  measure  be  eliminated. 

85 


I 


86  MISCELLANEOUS   MATTERS 

EXAMPLES 

1.  Ames,  a  book-agent,  solicits  a  subscription  from  Bates,  and  because 
Bates  is  a  prominent  person  in  the  city,  offers  to  sell  him  the  book  for  five  dol- 
lars, the  regular  price  being  fifteen  dollars.  Ames  tells  Bates,  however,  that 
he  prefers  to  have  him  sign  the  regular  blank  order  for  the  fifteen  dollars,'but 
will  only  charge  him  the  lesser  price.  Bates  signs  the  subscription  blank. 
Later,  delivery  of  the  book  is  made  by  another  agent  who  demands  the  entire 
sum  of  fifteen  dollars,  and  Bates  is  without  remedy,  for  the  court  will  not  allow 
him  to  modify  his  written  contract  by  oral  evidence. 

2.  Call  and  Brown  enter  into  a  contract  whereby  Brown  is  to  buy  an 
automobile  and  pay  $1500.  Call  agrees  to  keep  the  automobile  in  good  repair 
for  one  year.  The  parties  make  a  written  contract,  but  neglect  to  put  into 
the  contract  Call's  agreement  as  to  the  repair  of  the  automobile.  Later,  if 
Call  refuses  to  repair.  Brown  is  without  remedy,  because  the  written  contract 
will  be  assumed  to  state  all  the  terms  of  the  agreement,  and  to  have  superseded 
any  prior  oral  agreements  between  the  parties. 

128.  Second  Rule.  Proof  of  Transactions  with  Deceased 
Persons.  A  person  is  not  allowed  to  testify  as  to  agreements 
made  with  a  person  who  has  died,  in  suits  which  are  brought  or 
defended  by  the  executor  or  administrator  of  such  deceased 
person.  This  is  a  rule  which  perhaps  affects  business  men  more 
than  any  other  rule  of  evidence.  If  A  owes  B  a  sum  of  money 
and  dies,  leaving  considerable  property,  the  court  appoints  a 
person  known  as  an  executor  or  administrator  of  A's  estate,  to 
manage  the  estate  and  divide  it  among  A's  heirs.  B  may 
then  collect  his  debt  against  the  executor  or  administrator, 
if  it  was  a  valid  claim  at  A's  death,  but  in  proving  his  claim 
he  cannot  testify  as  to  the  conversations  which  he  had  with  A 
without  witness.  The  result  is  that  he  may  be  totally  unable 
to  prove  his  claim.  The  reason  for  this  rule  is  that  if  a  person 
could  testify  to  obligations  incurred  during  another's  life-time, 
when  they  could  not  be  denied  because  of  the  other's  death, 
there  would  be  great  opportunity  for  fraud.  Business  should 
be  conducted  with  this  rule  in  view.  The  evidence  should  always 
be  arranged  so  as  to  make  the  proof  of  the  indebtedness  easy. 
This  may  be  done  by  insisting  upon  having  debts  and  contracts 
reduced  to  writing.  A  promissory  note  is  to  be  preferred  to  an 
open  book  account,  for  then  the  debtor's  signature  to  the  note 
may  be  proved  by  third  persons.  Similarly,  a  written  contract 
is  always  to  be  preferred  to  an  oral  one,  for  then  it  may  be 
presented  before  the  court  to  prove  the  nature  of  the  claim. 


I 


MISCELLANEOUS  MATTERS  87 

EXAMPLE 

Sargent  owed  Smith  $200  on  a  promissory  note,  which,  however,  was  not 
collectible'  because  it  had  been  due  more  than  six  years  and  was  therefore 
"outlawed."  Sargent  recognized  the  debt  as  valid,  however,  and  meeting 
Smith  one  day  promised  that  he  would  pay  him.  This  promise  was  sufficient 
to  make  the  note  collectible,  but,  unfortunately  for  Smith,  Sargent  died  before 
paying  it.  In  a  suit  against  Sargent's  estate,  Smith  could  not  testify  as  to 
this  promise  of  Sargent,  and  in  default  of  such  testimony  could  not  collect  on 
the  note,  because  the  six  years  had  elapsed.  Smith  vs.  Wells,  Administrator, 
58  N.  H.  201. 

129.  Assignment  of  Contracts.  By  assignment  is  meant  the 
transferring  of  the  rights  of  one  person  under  a  contract  to 
another,  who  was  no  party  to  the  original  contract.  The 
benefits  or  rights  which  one  has  acquired  by  means  of  a  contract 
may  be  assigned,  except  when  they  consist  in  the  right  to  personal 
service  from  another,  and  are  purely  of  a  personal  nature.  On 
the  other  hand,  the  liabilities  or  duties  which  rest  on  one  party 
by  reason  of  a  contract  cannot  be  assigned  by  him  to  another  so 
as  to  release  him  as  the  party  liable.  If  such  an  assignment  of 
liabilities  be  attempted  without  the  consent  of  all  the  parties 
to  the  original  contract,  the  first  party  still  remains  liable  to 
perform  all  that  he  agreed  in  the  contract  to  perform. 

EXAM1>LES 

1.  A  agrees  to  buy  from  B,  who  agrees  to  sell,  500  tons  of  anthracite  coal 
to  be  delivered  in  Albany  on  October  first.  A  then  sells  his  right  to  receive 
the  coal,  to  C,  who  may  demand  the  delivery  by  B  in  Albany  according  to  the 
terms  of  the  original  contract  between  A  and  B. 

2.  The  White  Automobile  Company  sold  an  automobile  to  Amos,  con- 
tracting to  keep  it  in  repair  for  one  year  free  of  further  charge.  The  White 
Automobile  Company  then  sold  its  business  to  Jones  &  Brown,  partners,  and 
notified  Amos  that  Jones  &  Brown  would  carry  out  the  contract  and  that  he 
should  look  to  them  for  repairs.  This  is  an  attempt  ito  assign  a  liability,  and 
if  Jones  &  Brown  fail  to  carry  out  the  original  agreement,  Amos  may  sue  the 
White  Automobile  Company  for  breach  of  contract. 

130.  Result  of  Assignment.  One  important  result  follows, 
however,  upon  the  assignment  of  any  contract,  and  this  is  the 
continuation  of  any  set  off  or  counterclaim,  which  may  have 
existed  against  the  original  party  who  assigned,  against  the 
person  to  whom  he  assigned  his  benefits.  It  is  therefore  said 
that  a  person  taking  rights  under  a  contract  by  an  assignment 
takes  those  rights  subject  to  the  same  limitations  and  defenses 
which  existed  against  the  original  party. 


88  MISCELLANEOUS   MATTERS 

EXAMPLE 

Jordan  contracted  to  sell  to  Wheeler  5000  bushels  of  wheat  at  an  agreed 
price,  which  Wheeler  paid  in  promissory  notes.  Wheeler  then  assigned  his 
right  to  receive  the  wheat  to  Carter,  who  demanded  its  delivery  from  Jordan. 
Jordan  delivered  4000  bushels,  but  refused  to  deliver  the  balance,  claiming 
a  set-oflf  against  Wheeler  because  one  of  Wheeler's  notes  given  in  payment 
had  not  been  paid.  He  was  justified  in  this  because  Carter  took  Wheeler's 
right  to  receive  the  wheat  subject  to  any  defense  which  might  have  been 
urged  against  him. 

Another  feature  regarding  assignments  of  contract  rights  is 
that  for  his  own  protection  any  person  who  acquires  such  rights 
should  at  once  notify  the  other  party  to  the  contract  that  he  is 
the  assignee.  Otherwise  the  latter  may  continue  to  perform 
for  the  benefit  of  the  original  party  to  whom  he  was  bound  by 
the  contract,  being  protected  because  he  is  ignorant  of  the  change 
in  parties. 

If  A  owes  B  $500  on  a  contract,  B  might  assign  his  right  to  receive  the 
$500  to  C,  but  until  A  is  notified  of  this  assignment  he  would  be  under  no 
obligation  to  pay  C.  If  B  were  dishonest  he  might  still  collect  the  money, 
and  C's  only  remedy  would  be  against  him  and  not  against  A. 

In  closing  the  subject  of  the  assignment  of  contracts,  atten- 
tion is  especially  drawn  to  these  facts :  that  the  person  claiming 
contract  rights  by  assignment,  called  the  assignee,  takes  no  other 
rights  than  his  assignor,  from  whom  he  acquired  his  rights,  had, 
and  his  acquired  rights  are  subject  to  the  same  defenses  which 
might  have  been  urged  against  his  assignor;  and  further  that, 
for  his  own  protection,  he  must  immediately  notify  of  the 
assignment  the  party  still  held  bound  by  the  contract.  In  only 
one  particular  form  of  contract,  called  a  Negotiable  Instrument, 
are  these  rules  subject  to  any  exceptions. 

PRACTICAL   SUGGESTIONS  FOR  WRITTEN   CONTRACTS 

The  business  man  may  rarely  be  required  to  draw  his  own 
contracts,  but  it  will  often  be  necessary  for  him  to  inspect  con- 
tracts to  discover  the  rights  and  duties  which  are  thereby 
created.  For  this  purpose  it  is  well  for  him  to  be  familiar  with 
the  usual  forms  in  which  such  agreements  are  made.  Should 
he  ever  be  required  to  prepare  his  own  contracts  he  will  find  the 
following  points  and  suggestions  of  value  for  a  working  model. 


MISCELLANEOUS   MATTERS 


89 


Arrangement 

The  following  matters  should  appear  in  every  contract,  and 
it  is  best  to  devote  a  separate  paragraph  to  each,  although  the 
3d,  4th  and  5th  items  are  frequently  grouped  together. 

1.     Date  and  names  of  the  parties, 
,2.     Purpose  of  the  agreement, 

3.  Consideration, 

4.  Conditions  to  be  performed  by  each  party, 

5.  Time  and  place  of  performance  of  conditions, 

6.  Signatures  of  parties.  (Witnesses  and  seals,  when 
required.) 

This  suggested  arrangement  is  illustrated  in  the  contract  for 
the  sale  of  a  harvest  of  wheat  shown  herewith. 


Contract 


Date,  Names, 
and  Addresses 
of  Parties 


Purpose  of 
Agreement 


Consideration 


Place  of 
Performance 


Time  of 
Performance 


and  Payment 


Signatures 


THIS  AGREEMENT  made  this  25th  day  of  February,  1916, 
between  Parke  Knapp,  of  Oregon,  Illinois,  hereinafter  called 
the  seller-,  and  George  Jenkins,  of  St.  Louis,  Missouri, 
hereinafter  called  the  buyer: 

WITNESSETH  that  the  seller  having  agreed  to  sell,  and 
the  buyer  to  buy,  certain  wheat; 

NOW  in  consideration  of  ninety  cents  per  bushel,  the 
seller  hereby  sells  and  agrees  to  deliver  to  the  buyer  at 
his  warehouse  at  St.  Louis,  Mo.,  all  the  wheat  raised  and 
harvested  by  him  on  his  two  farms  in  Mayburn  township. 
Ogle  County,  Illinois,  during  the  present  y6ar. 

Said  wheat  is  to  be  delivered  at  said  warehouse  in 
good,  clean,  and  merchantable  condition,  on  or  before  the 
15th  day  of  September,  1916. 

The  said  buyer  agrees  to  pay  for  the  same  immediately 
upon  such  delivery. 

WITNESS  the  hands  of  the  parties. 

Parke  Knapp 
George  Jerikln.f 


Signed. 


90  MISCELLANEOUS   MATTERS 

Further  Comments 

Clear  and  concise  language  is  of  the  greatest  importance 
in  drawing  contracts.  Useless  language  should  be  avoided,  but 
every  important  term  should  be  included,  because  the  written 
instrument  is  presumed  to  include  the  entire  agreement  between 
the  parties. 

Always  state  the  consideration  clearly,  as  well  as  the  act 
which  each  party  has  promised  to  perform. 

It  is  the  better  practice  to  place  each  separate  element  or 
condition  in  a  separate  paragraph,  because  there  will  be  less 
opportunity  to  overlook  them,  either  in  drawing  the  contract  or 
performing  it. 

The  formal  opening  and  closing  of  contracts  suggested  in 
the  preceding  illustration  is  of  value,  in  that  it  is  the  usual  form 
and  shows  plainly  that  the  parties  intended  to  make  a  contract. 
If,  as  in  some  states,  it  is  necessary  for  contracts  to  sell  land, 
to  be  under  seal,  the  usual  closing  is  as  follows: 

WITNESS  our  hands  and  seals  the  first  day  and 
year  above  written. 

Signed       Parlce  Knapp  [Seal] 

George  Jenkins  [Seal] 

When  witnesses  are  required,  they  sign  at  the  left  of  the 
contract  in  a  form  similar  to  this : 

Witnesses 
Adam  Smith. 
Wilbur  Young. 

PROBLEMS 

Write  contracts  suitable  for  the  following  situations: 

1.  Lillian  Mauston  is  to  be  employed  as  a  teacher  in  the  Brownsville 
District  School  for  one  year  beginning  Sieptember  1,  1915.  George  McCarthy 
is  the  Director  of  the  School  District.  Miss  Mauston  is  to  devote  her  entire 
time  to  the  work  and  is  to  be  paid  $65  a  month.  Her  duties  are  the  usual 
duties  of  a  teacher  in  a  country  school,  and  she  is  to  be  excused  only  in  case  of 
her  ill-health.  She  is  to  lose  $4  a  day  when  absent  during  the  term,  or  is  to 
furnish  her  own  substitute.  The  school  year  terminates  June  15,  1916,  and 
she  is  to  have  four  days'  vacation  at  Thanksgiving,  two  weeks  at  Christmas, 


MISCELLANEOUS   MATTERS  91 

and  one  week  at  Easter,  the  precise  dates  to  be  determined  by  the  trustees 
of  the  district. 

2.  Albert  Black,  a  farm  laborer,  is  to  be  employed  by  Austin  Marcum,^ 
a  farmer,  for  six  months,  at  $30  a  month,  to  be  paid  every  two  months.  He  is 
to  agree  to  devote  his  entire  time  to  the  usual  work  about  the  farm,  and  Mar- 
cum  is  to  furnish  his  room  and  board.  Should  Black  be  guilty  of  misbehavior 
at  any  time,  Marcum  is  to  have  the  privilege  of  discharging  him  and  retaining 
one  month's  salary  for  the  damages. 

3.  Walter  Grant,  who  while  an  infant,  bought  groceries  of  Mallery  & 
Stout,  grocers,  has  become  of  legal  age.  He  wishes  to  ratify  the  debt,  which 
amounts  to  $225,  and  Mallery  &  Stout  agree  that  he  may  pay  it  in  installments 
of  S25  a  month,  without  interest,  if  he  will  agree  in  writing  to  pay  it,  and  will 
not  sue  him  if  he  pays  it  according  to  these  terms. 

4.  Henry  Morgan  wishes  to  contract  with  Smith  &  Cohen,  building  con- 
tractors, they  to  agree  to  build  him  a  house  on  his  property,  Lot  One,  Block 
Two,  Dubuque,  Iowa,  according  to  the  plans  and  specifications  made  for  him 
by  Shipley  Stark,  an  architect.  The  contractors  are  to  furnish  all  materials, 
begin  work  in  March  of  the  current  year,  and  complete  the  house  not  later 
than  October  first.  Their  bid  for  construction,  which  Morgan  accepted,  was 
$6280.  Their  work  is  to  be  under  the  supervision  of  the  architect,  and  all 
workmanship  and  materials  are  to  be  of  the  highest  grade.  They  are  to  keep 
the  building  adequately  insured  during  its  construction,  and  to  remove  all 
rubbish.  They  may  receive  pay  in  monthly  installments  on  furnishing  archi- 
tect's certificates  stating  the  value  of  the  work  then  completed,  and  are  to 
receive  seventy-five  per  cent  of  the  amount  represented  by  such  certificates  on 
demand.  They  will  be  paid  for  additions  and  variations  in  the  plans  only 
when  such  variations  are  agreed  upon  in  writing  before  being  made. 

Suggestions  in  preparing  above  contracts.  List  every  item 
which  you  wish  to  include  in  the  contract.  Follow  the  general 
scheme  suggested  for  all  contracts.  Devote  a  separate  paragraph 
to  each  material  matter.  State  each  term  in  simple,  clear  and 
concise  language.     Supply  names  and  dates. 


REVIEW   QUESTIONS 

1.  A  writes  to  B  that  he  will  take  100  barrels  of  apples  at  $4.00  per  barrel, 
(o)  Must  B  furnish  the  apples?  (b)  If  B  desires  to  furnish  the  apples,  how 
soon  must  he  accept? 

2.  A  offers  by  letter  to  sell  his  house  to  B  for  $1,000.  B  replied  by 
letter,  "I  accept,  subject  to  your  first  putting  the  house  in  thorough  repair." 
Is  there  a  contract  or  not?     Why? 

3.  A  agreed  to  sell  a  horse  to  B,  each  supposing  the  price  was  agreed 
on.     Before  delivery  it  transpired  that  A  thought  the  price  was  to  be  SI 75, 


92  MISCELLANEOUS   MATTERS 

while  B  thought  it  was  to  be  S125.  Was  there  a  sale?  Why?  Suppose  this 
misunderstanding  was  not  disclosed  until  after  delivery,  what  would  be  the 
rights  of  the  parties? 

4.  In  the  above  case,  no  delivery  having  been  made,  B  writes  to  A 
that  he  will  split  the  difference,  and  adds,  "If  I  do  not  hear  from  you  by  return 
mail,  I  shall  consider  the  horse  mine."  A  gets  the  letter  but  does  not  reply. 
Is  there  a  contract?     Give  reasons. 

5.  A  contracted  to  deliver  a  cargo  of  lumber  on  board  a  vessel  within 
ten  days.  He  began  the  delivery,  but  a  sudden  frost  made  it  impossible  to 
bring  any  more  lumber  from  the  mills  by  boats  navigating  the  canal.  For 
this  reason  the  work  was  delayed  twenty  days.     Is  A  liable,  and  why? 

6.  A,  in  ignorance  of  the  fact  that  B  is  an  adjudged  lunatic  under  guar- 
dianship, enters  into  a  contract  with  him.  Can  B's  guardian  enforce  the 
contract?  Would  your  answer  be  different  if  B  were  a  minor  instead  of  a 
lunatic?     Why? 

7.  A  agrees  orally  to  purchase  a  house  and  lot  of  B  at  a  certain  stipu- 
lated price.  They  are  to  meet  on  a  future  day  and  complete  the  sale.  Before 
the  day  mentioned,  B  writes  A  that  he  will  not  make  the  sale  at  the  price 
agreed  upon.     What  remedy  has  A? 

8.  A,  a  minor,  agrees  to  sell  B  a  horse  for  $250.  (a)  Suppose  before 
delivery  A  refuses  to  be  bound,  (b)  Suppose  delivery  has  been  made  and 
money  paid  when  A  insists  on  a  rescission,  (c)  Suppose  that  B  sells  the  horse 
to  C  and  then  A  rescinds.    What  are  the  rights  of  the  parties  in  each  case? 

9.  A,  in  the  presence  of  several  persons  orally  hires  B  for  one  year  begin- 
ning the  following  September  first,  at  a  yearly  salary  of  $1800.  B  enters 
upon  his  employment  and  continues  for  seven  months,  when  he  is  discharged 
through  no  fault  of  his  own.     Can  he  recover  from  A,  and  if  so  how  much? 

10.  A  owes  B  a  sum  of  money.  C,  for  a  valuable  consideration,  agrees 
with  A  to  pay  his  debt  to  B.     Should  this  contract  be  in  writing?     Why? 

11.  F  sells  property  to  G,  intending  to  put  the  proceeds  beyond  reach 
of  creditors.  Can  G,  knowing  all  the  facts,  hold  the  property  as  against  the 
creditors  of  F?  Can  he  hold  it  as  against  F's  creditors,  if  he  had  no  knowledge 
of  F's  scheme?     Give  reasons  for  your  answers. 

12.  A  dispute  arose  between  A  and  B  as  to  the  amount  due  from  B  to 
A.  A  claimed  $90  while  B  conceded  only  $60.  Under  these  circumstances 
what  is  the  best  thing  for  B  to  do?  If  A  sues  B  for  $100  what  can  B  do,  if 
anything,  to  relieve  himself  from  coets  and  what  will  be  his  defense?  If 
upon  trial  it  is  found  that  $60  only  is  due,  who  must  pay  the  costs  and  why? 


i 


CHAPTER  XIII 


NEGOTIABLE  INSTRUMENTS 


T.   Essentials< 


1.  In  writing 

2.  Payable  in  money 

3.  Payable  absolutely 

4.  Negotiable  in  form 

5.  Payable  in  specified 

time 


ii: 


Checks 
II.  Kinds^2.  Drafts 
[3.   Notes 

n 


III.  Rights  and 
Liabilities 
of  Parties 


Maker's  or  Acceptor's 
Contract 


2.  Drawer's  or 
Indorser's^ 
Contract 


b. 


3.  Rights 
of  Holder 
in  Due 
Course 


a.  As 
against 


Conditional 
liability 
to  pay 

Warranties 

'1.  Maker, 
[Drawer,  or 
Acceptor 
2.  Prior 
Holders 


1.  Present- 
ment for  ac- 
b.  May  ceptance 
depend  2.  Present- 
on    <ment  for 
payment 
3.  Proceed- 
ings on  dis- 
^honor 

131.  Inadequacy  of  Assignment.  As  we  have  seen,  any 
contract  may  be  assigned  if  the  assignee  is  willing  to  accept 
it  subject  to  the  defenses  that  might  have  existed  against  it 
in  the  hands  of  the  original  holder.     Such  an  assignment,  how- 

93 


94  NEGOTIABLE   INSTRUMENTS 

ever,  does  not  facilitate  business,  because  a  purchaser  of  rights 
under  a  contract  could  never  be  entirely  certain  of  realizing  the 
full  value  of  the  thing  he  thought  he  was  buying,  for  there  might 
be  set-offs  against  it.  Not  only  might  there  be  set-offs,  but  if 
the  original  contractor  had  been  guilty  of  fraud  which  might 
have  been  a  defense  against  him,  the  same  defense  could  be  urged 
against  his  assignee.  These  uncertainties  would  seriously  inter- 
fere with  the  free  circulation  of  such  contracts  among  business 
men. 

132.  Negotiability.  Certain  forms  of  business  papers, 
such  as  checks,  notes,  and  drafts,  pass  freely  from  hand  to  hand, 
the  law  protecting  the  holder  in  his  right  to  collect  face  value 
at  maturity  from  the  party  originally  responsible  for  its  payment. 

If  Ames  gives  his  note  for  $100  to  Bates,  Smith  has  a  right  (if  the  note  is 
properly  made  out  and  passes  under  proper  conditions)  to  assume  that  the  note 
is  worth  its  face  value,  $100,  and  he  may  buy  it  for  SlOO  without  fear  that  Ames 
in  paying  it  will  hold  back  a  part  in  settlement  of  any  debt  Bates  might  owe 
Ames,  or  that  it  might  be  subject  to  a  defense  of  fraud.  The  law  covering 
such  cases  requires  Ames  to  pay  the  full  amount  called  for  by  the  note. 

Such  papers  are  said  to  possess  the  quality  of  negotiability, 
or  easy  negotiation.  To  be  negotiable,  a  paper  must  possess 
certain  elements,  and  must  pass  from  hand  to  hand  under 
certain  conditions.  What  these  elements  and  conditions  are, 
and  what  are  the  principal  negotiable  instruments,  it  is  the 
purpose  of  this  chapter  to  show. 

A  brief  history  of  negotiable  instruments  wilf  be  of  interest 
at  this  point. 

Origin.  Under  the  old  rule  of  the  common  law,  contract  rights  could  not 
be  assigned.  Later,  assignment  was  permitted,  but  this  was  still  unsatis- 
factory to  merchants,  owing  to  the  inadequacy  of  assignment,  previously 
discussed. 

Existing  laws  being  unsatisfactory,  merchants  began  to  make  their  own 
rules,  under  which  checks,  notes,  and  drafts  were  permitted  to  pass  freely 
from  hand  to  hand,  purged  of  all  claims  against  them  when  once  they  passed 
into  the  hands  of  third  parties,  under  proper  conditions. 

To  enforce  these  rules,  merchants  organized  their  own  courts,  by  which 
all  agreed  to  be  bound.  The  rules  as  enforced  by  these  merchants'  courts 
came  to  be  known  as  the  Law  Merchant.  In  the  reign  of  Queen  Anne,  the 
rules  of  the  Law  Merchant  were  finally  recognized  by  statute  in  England, 
and  similar  recognition  has  been  given  them  in  other  countries. 


NEGOTIABLE    INSTRUMENTS  95 

In  the  United  States  the  character  of  negotiable  instruments  has  been 
recognized  by  statute  in  the  several  states.  Minor  differences  in  these  state 
statutes  led  to  much  trouble  in  dealings  between  merchants  in  different  states. 
For  this  reason  a  conference  of  lawyers  and  business  men  in  1897  formulated 
the  Negotiable  Instruments  Law  (N.  I.  L.),  and  efforts  have  been  made  to 
secure  uniformity  by  inducing  all  the  states  to  adopt  this  law.  The  N.  I.  L. 
has  already  been  adopted  in  many  states,*  and  there  are  prospects  of  its  early 
adoption  by  others.  States  which  have  not  yet  adopted  the  N.  I.  L.  are  still 
governed  by  their  own  original  statutes,  in  matters  concerning  commercial 
paper. 

133.  Assignability  Contrasted  with  Negotiability.  The 
principal  difference  between  a  negotiable  instrument  and  an 
ordinary  contract  to  pay  money  Hes  in  the  distinction  between 
assignability  and  negotiability. 

Assignability  is  the  quaHty  by  virtue  of  which  contracts  and 
other  rights  may  be  transferred  to  a  third  party,  called  the 
assignee,  whose  rights  are  thereafter  measured  by  the  rights  of 
his  assignor.  Negotiability  is  the  quality  of  a  certain  class  of 
written  contracts  by  virtue  of  which  rights  thereunder  may  be 
transferred  to  a  third  party,  called  the  endorsee,  whose  rights 
thereunder  are  thereafter  measured  by  the  wording  of  the 
instrument  itself.  A  holder  may  often  secure  a  better  title 
than  the  original  holder  had.  This  is  because  in  the  original 
holder's  hands  the  paper  may  have  been  subject  to  set-offs  or 
the  defense  of  fraud,  which  could  not  be  urged  against  a  subse- 
quent holder  in  due  course,  f 

In  the  case  of  the  assignment  of  a  contract  it  is  always  neces- 
sary for  the  assignee,  in  order  to  protect  his  rights,  to  give  notice 
of  the  assignment  to  the  original  debtor.  Otherwise  the  original 
debtor  might  pay  a  prior  party  and  the  assignee  would  lose  his 

*  Alabama,  Arizona,  Colorado,  Connecticut,  District  of  Columbia, 
Florida,  Hawaii,  Idaho,  Illinois,  Iowa,  Kansas,  Kentucky,  Louisiana,  Mary- 
land, Massachussetts,  Michigan,  Missouri,  Montana,  Nebraska,  New  Jersey, 
Nevada,  New  Mexico,  New  York,  North  Carolina,  North  Dakota,  Ohio, 
Oregon,  Pennsylvania,  Rhode  Island,  Tennessee,  Utah,  Virginia,  Washington, 
West  Virginia,  Wisconsin  and  Wyoming. 

t  A  holder  in  due  course,  sometimes  called  an  innocent  bona  fide  holder  for 
value,  is  one  who  under  the  rules  of  the  Law  Merchant  receives  a  title  to  nego- 
tiable paper  free  from  special  defenses  which  might  have  been  urged  against 
a  prior  holder.  The  terms  are  frequently  used  and  in  general  describe  a  trans- 
feree (one  to  whom  the  negotiable  paper  has  been  transferred)  who  has  paid 
value  for  the  negotiable  instrument,  and  who  has  received  the  instrument 
in  the  usual  course  of  business  before  maturity  without  notice  of  the  existence 
of  any  defenses.     These  points  are  discussed  in  detail  in  a  subsequent  chapter. 


96  NEGOTIABLE   INSTRUMENTS 

right  to  demand  payment.  On  the  other  hand,  negotiation  may 
take  place  without  the  knowledge  or  consent  of  the  person  who 
signed  the  negotiable  paper,  thereby  promising  to  pay  its  face 
to  whomever  might  legally  hold  it  at  maturity.  With  these 
general  characteristics  in  mind  it  is  important  to  learn  what 
sort  of  contracts  may  be  negotiated  instead  of  merely  assigned. 

EXAMPLES 

1.  Ames,  through  fraud,  induced  Bates  to  sign  and  deliver  to  him  a  con- 
tract agreeing  to  pay  Ames  $50.00  at  a  given  time.  Ames  sold  and  assigned 
this  contract  to  Call  for  a  money  consideration,  Call  knowing  nothing  about 
the  original  transaction.  Nevertheless  Call  was  not  able  to  collect  on  the 
contract  from  Bates  because  of  the  fraud  in  the  original  transaction. 

2.  Dake,  through  fraud,  secured  a  negotiable  note  from  Fell,  and  sold 
and  endorsed  it  at  once  and  before  maturity  to  Goes  for  a  money  consider- 
ation. Goes  knew  nothing  of  the  transaction  between  Dake  and  Fell.  At 
maturity  he  brought  suit  against  Fell  to  recover  the  amount  of  the  note  and 
as  he  was  a  holder  in  due  course  was  allowed  to  recover  the  amount  of  the 
note.  If  this  paper  had  remained  in  Dake's  hands.  Fell  could  have  urged  the 
fraud  in  defense  of  a  suit  to  collect  it. 

134.  A  Negotiable  Instrument  is  a  written  contract  possess- 
ing certain  necessary  elements,  and  which  when  transferred  under 
certain  conditions,  passes  to  the  purchaser  free  and  clear  of  any 
defenses  that  might  have  existed  against  it  in  the  hands  of  the 
original  holder. 

It  is  a  special  form  of  contract  to  pay  money.  The  four 
elements  of  the  ordinary  contract — competent  parties,  mutual 
agreement,  consideration  and  legal  subject  matter — are  neces- 
sary to  its  validity.  When  it  is  about  to  be,  or  has  been,  trans- 
ferred, other  requirements  are  necessary  to  impart  to  it  the  added 
quality  of  negotiability.  These  are,  that  the  instrument 
must  be, 

1.  In  writing, 

2.  Payable  in  money, 

3.  Payable  absolutely, 

4.  Negotiable  in  form,  and 

5.  Must  have  definite  date  of  payment. 

135.  Forms  of  Negotiable  Instruments.  Negotiable  instru- 
ments are  of  three  kinds.  These  are  drafts,  checks,  and  notes, 
each  of  which  is  treated  in  detail  in  a  subsequent  chapter.  The 
following  are  typical  forms  of  each : 


I 


NEGOTIABLE   INSTRUMENTS 

Draft  or  Bill  of  Exchange 


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136.  Parties.  It  has  been  seen  that  competent  parties  are 
essential  to  the  validity  of  all  contracts.  This  includes  contracts 
evidenced  by  negotiable  instruments.     The  parties  to  a  nego- 


98  NEGOTIABLE   INSTRUMENTS 

liable  instrument  may  be  divided  into,  (1)  original,  or  those  who 
are  named  in  the  instrument,  and  (2)  subsequent,  or  those  into 
whose  hands  it  may  fall  later. 

The  original  parties  must  all  be  designated  with  certainty. 
This  is  necessary  in  order  that  he  who  is  to  pay  may  know  to 
whom  or  for  whom  payment  should  be  made,  and  that  he  who  is 
to  receive  payment  should  know  from  whom  to  demand  it.  The 
original  parties  must  also  be  the  exact  parties  named  in  the 
instrument,  and  if  the  name  of  one  be  a  forgery-,  no  liability  is 
created  on  the  part  of  the  person  whose  name  is  forged,  not  even 
to  a  subsequent  holder. 

When  the  name  of  one  of  the  original  parties  is  signed  by 
an  agent,  in  order  to  charge  the  principal  and  not  the  agent  it 
is  necessary  for  the  agent  to  sign  both  his  own  name  and  that  of 
the  principal  in  some  such  manner  as  this,  "John  W.  Jones,  by 
Adam  Smith,  his  agent."  If  the  agent  merely  signs  his  own 
name,  even  though  he  add  the  word,  "agent,"  he  himself,  and 
not  his  principal,  becomes  one  of  the  original  parties  to  the 
instrument. 

EXAMPLE 


$100.00 


Chicago,  ILL.,-"^?-^----/-'-^-?/-^.'. 


lVv??./.??!".?rr^r?:^^AFTER  DATE. -'..PROMISE  TO  PAY 


TO  THE  ORDER  OF. 

One  Hundred  and  "^/joo  ^--^^--^--- -y^-^^-^^,-^^-^  j^ 


William  Ames- 

""^  '"OLLARS, 


WITH  INTEREST  AT. ....PER  CENT  PER  ANNUM. 


James  Brown,  Agent. 


The  above  is  a  negotiable  instrument,  called  a  promissory  note. 
Because  of  the  manner  in  which  Brown  signed,  he  alone  is  bound  to  pay  the 
note,  and  not  some  person  for  whom  he  may  claim  he  was  acting  as  agent, 
but  whose  name  does  not  appear. 

137.  Made  in  Writing.  To  be  negotiable,  a  contract  must 
be  either  in  writing  or  printing,  or  both.  In  fact  a  large  pro- 
portion of  the  negotiable  paper  of  business  is  made  on  printed 
blanks,  only  those  portions  wherein  one  may  differ  from  another 


NEGOTIABLE   INSTRUMENTS  99 

being  inserted  in  writing.     The  writing  should  be  in  ink,  though 
a  negotiable  instrument  written  with  a  pencil  is  valid. 

138.  Payable  in  Money.  A  negotiable  instrument  must  be 
payable  in  money,  and  not  in  goods  and  chattels.  If  payable  in 
specific  articles  it  becomes  a  special  contract,  and  loses  its 
character  as  a  negotiable  instrument.  It  may  in  all  other 
respects  be  in  correct  form,  and  may  be  transferred  by  delivery, 
yet  unless  it  is  payable  in  money  it  is  not  negotiable  in  the  sense 
of  giving  a  superior  title  to  a  subsequent  party. 

The  amount  to  be  paid  must  be  stated  with  certainty,  or 
the  means  given  by  which  it  can  be  readily  ascertained.  It  is 
not  negotiable  if  it  be  a  promise  to  pay  a  certain  amount,  "and 
all  other  sums  which  may  be  due."  If,  however,  there  be  added 
to  the  amount  the  words,  "with  current  exchange,"  the  paper  is 
nevertheless  negotiable,  because  the  amount  can  be  readily 
ascertained.  The  amount  is  usually  expressed  in  both  figures 
and  words.  If  these  differ,  the  written  amount  prevails  in  the 
absence  of  other  evidence. 

By  the  special  statutes  of  two  States,*  a  note  or  other  instru- 
ment payable  in  specific  chattels  is  negotiable,  and  in  some  States 
it  has  been  enacted  that  even  negotiable  words  are  not  necessary. 
Neither  of  these  special  rules,  however,  has  been  adopted  by 
the  N.  I.  L.,  which  states  the  rules  of  the  old  Law  Merchant. 

139.  Payable  Absolutely.  There  must  be  no  condition  or 
contingency  attached  to  the  payment.  A  negotiable  paper, 
it  has  been  said,  "is  a  courier  without  luggage."  It  must  con- 
tain a  definite  direction  or  order,  or  a  certain  promise,  to  pay. 
A  mere  acknowledgment  of  an  indebtedness,  such  as  "I.  O.  U. 
SI 00,"  is  not  generally  sufficient  to  satisfy  this  requirement,  for 
while  a  promise  to  pay  may  be  implied,  yet  none  is  expressed. 
If  any  condition  be  attached  to  the  payment,  such  as,  "provided 
a  certain  ship  arrives,"  or  "when  A  shall  marry,"  the  negotia- 
bility is  destroyed,  because  it  may  be  that  neither  of  these  con- 
ditions will  happen.  So  also  if  it  be  payable  out  of  a  certain 
fund,  and  limited  to  that  fund  alone,  the  instrument  is  not 
negotiable,  for  the  fund  may  not  prove  sufficient.  A  note  to  be 
payable  "ten  months  after  my  death,"  is  absolute  in  form, 

*  Indiana  and  Minnesota. 


100  NEGOTIABLE   INSTRUMENTS 

because  the  maker  is  certain  to  die,  and  the  note  will  then  be 
payable  out  of  his  estate. 

If  a  note  is  made  payable  by  installments,  with  a  condition 
that  if  default  be  made  in  the  payment  of  any  installment,  the 
whole  shall  be  immediately  payable,  this  form  is  not  so  uncertain 
as  to  destroy  the  negotiable  character  of  the  instrument  of  debt. 

If  the  student  will  remember  that  the  object  of  negotiable  paper  is  that  it 
may  serve  as  a  substitute  for  money  in  facilitating  the  exchange  of  money, 
the  reasons  for  these  rules  will  be  easily  seen.  It  was  the  aim  of  the  Law 
Merchant  to  give  the  character  of  negotiability  only  to  such  paper  as  really 
corresponded  to  money  as  a  medium  of  exchange,  and,  of  course,  the  only 
promises  that  can  approximate  the  quality  of  money  are  promises  to  pay  a 
certain  sum  absolutely  and  at  all  events. 

EXAMPLES 


Mission,  Outagamie  Co.,  Wis.,  June  1,  1897. 
To  Buckstaff -Edwards  Co.: 

Please  'pay  to  the  order  of  G.  E.  Woodward  and  Ed. 
Erickson,  the  sum  of  $600,  the  same  to  he  the  last  $600  due 
me  on  my  contract,  and  charge  the  same  to  my  account. 

Joseph  Smith. 


This  instrument  was  in  the  form  of  a  draft,  but  the  addition  of  the  words, 
"the  same  to  be  the  last  $600  due  me  on  my  contract,"  limited  the  payment  to 
whatever  sum  was  actually  due  on  the  contract,  and  as  there  was  no  ready 
.means  of  knowing  whether  this  was  more  or  less  than  $600,  the  court  decided 
that  the  draft  was  not  negotiable.     Woodward  vs.  Smith,  104  Wis.  365. 

2.  If,  however,  in  the  above  example  the  objectionable  words  had  been 
substituted  by  the  words,  "on  account  of  contract  between  you  and  me," 
the  payment  would  not  have  been  limited  to  the  fund  due  on  this  contract, 
but  any  excess  would  have  been  payable  absolutely  because  no  direction  was 
given  to  pay  the  whole  sum  out  of  a  particular  fund.  In  such  a  case  the  draft 
would  have  been  negotiable.  The  courts  incline  toward  holding  paper  nego- 
tiable, and  construe  such  provisions  as  being  merely  directory  to  charge  to  the 
specified  fund  so  far  as  it  shall  suffice,  and  to  pay  the  excess  out  of  other 
funds,  where  it  is  possible  to  do  so.    First  Nat.  Bank  vs.  Lightner,  74  Kans.  736. 

140.  Negotiable  in  Form.  This  means  that  the  written 
instrument  must  contain  negotiable  words.  The  instrument 
must  show  on  its  face  that  the  parties  intended  that  it  should  pass 
from  hand  to  hand,  and  not  be  limited  to  remain  in  the  hands  of 
the  original  holder.  The  recognized  words  of  negotiability  are 
"bearer,"  "or  bearer,"  and  "or  order." 


NEGOTIABLE   INSTRUMENTS  101 

141.  Specified  Date  of  Payment.  Like  all  written  contracts, 
negotiable  instruments  should  be  dated,  but  this  is  not  absolutely 
necessary.  They  should,  however,  state  the  time  when  due,  or 
at  least  give  the  facts  by  which  this  can  be  determined  readily. 
This  is  for  two  reasons :  (1)  That  the  holder  may  know  when  to 
demand  payment,  and  (2)  that  the  time  may  be  fixed  when  the 
statute  of  limitations  begins  to  run,  which  is  always  the  date  on 
which  the  note  became  due.     The  common  expressions  in  this 

connection  are  "on  demand,"  "at  sight,"  " days  after 

sight,"  and  " ...days  from  date,"  and  these  are  sufficiently 

definite. 

An  instrument  may  be  antedated  or  postdated,  provided  this 
is  not  done  for  an  illegal  purpose,  and  when  the  date  is  given  in 
this  manner,  even  though  it  is  not  the  actual  date  on  which  the 
instrument  was  made,  it  is  the  one  used  in  determining  the  date 
when  the  instrument  will  become  due,  called  its  date  of  maturity. 
If  the  date  is  left  blank,  any  holder  has  the  right  to  insert  the 
true  date  on  which  the  instrument  was  made;  and  should  he 
insert  an  improper  date,  the  parties  will  still  be  bound  by  the 
date  so  inserted  when  the  instrument  has,  by  indorsement  or 
delivery,  passed  into  the  hands  of  a  holder  in  due  course.  If  the 
date  is  left  blank  by  all  the  parties  the  time  will  be  computed 
from  the  date  on  which  the  instrument  was  actually  made. 

142.  Delivery.  In  addition  to  the  above  essentials  of  the 
paper  itself,  it  must  be  delivered  before  it  has  effect.  If  an 
otherwise  valid  instrument  gets  into  circulation  without  the 
consent  and  through  no  fault  of  the  maker,  the  maker  will  not 
be  liable  on  it. 

EXAMPLE 

Ames  writes  out  a  note  payable  to  bearer  which  he  intends  to  deliver  to 
Bates.  Call,  who  is  standing  near  by,  seizes  the  note  as  Ames  writes  his  name 
on  it,  and  runs  out,  transferring  it  to  Smith,  an  innocent  bona  fide  holder. 
Smith  cannot  enforce  the  note  against  Ames,  because  Ames  never  delivered  it. 

The  qualities  so  far  discussed  are  essential  to  the  validity 
of  all  forms  of  negotiable  paper.  In  the  next  three  chapters  the 
three  forms  of  negotiable  instruments  commonly  used  in  business, 
are  described  and  discussed.  These,  as  previously  stated,  are 
drafts,  checks,  and  notes. 


102  NEGOTIABLE   INSTRUMENTS 

REVIEW    QUESTIONS 

1.     Insp)ect  the  following  promissory  note: 


When  this  note  was  not  paid  H.  Swift  and  Company  brought  suit  against 
the  Wallis  Iron  Company.  Could  they  recover  the  $1100  from  the  Wallis 
Iron  Company?  Could  they  have  recovered  this  amount  from  Wallis  and 
Smith  personally?     Why? 

2.     Inspect  the  following  promissory  note: 


■  ifinn.nn—  Mt.   Morris,   H.   Y. ,    Jan.    1,    1890. 


.  >i«i^i^iea6*6»*.i.  ^/^^^j^^'Zd^fi^^i^^^!^ ! 


miTftr    .Tamea    Rlee 

thfi    sum   of  Plftean   Hundred  k  no/lOQ -  )^yJ/>/^^/ 

j^ wViftn    hn    ia    g1    yaarg    nf   agp ,    with    tnteroat    from   date, 


gUAr- 


/^i?^^^   "^  /i^    A^'^'''^ 


Is  this  a  negotiable  instrument?     Why? 
3.     Inspect  the  following  promissory  note: 


^ fifin -f>n Doxter.    Me..    Jan.    6.    1697. 

.A4^fy»Y:^/r;^     Olivia  Hodge 


PiTA    ynnA-r-H    g<Tty>    nr./10n b::^J/?/M/Jii 

^/Z"    this  bank  In  current  funds. 


.4^23 ^lu^_ 


Is  this  a  negotiable  instrument?     Why? 


NEGOTIABLE  INSTRUMENTS  103 

4.     Inspect  the  following  instrument: 


Rutland  and  Burlington  Railroad  Company 

No.  253  $1000.00 


Boston,  Mass.,  Apr.  1,  1850. 
In  four  years  from  date,  for  value  received,  the  Rutland  and 
Burlington  Railroad  Company  promises  to  pay  in  Boston,  to 
Messrs.  W.  S.  &  D.  W.  Shuler,  or  order,  $1000,  with  interest 
thereon,  or  at  its  option  to  transfer  to  the  said  W.  S.  &  D.  W. 
Shuler  ten  shares  of  capital  stock  in  this  company  of  the  par 
value  of  $100  each. 

Rutland  and  Burlington  Railroad  Company, 
By  T.  Follett,  President, 

Sam.  Henshaw,  Treasurer. 


Is  this  a  negotiable  instrument?     Why? 

5.  Mary  Brown  contracts  to  work  for  Mrs.  Smith  as  a  domestic  for  $5.00 
a  week.  Mrs.  Smith  sellt  her  right  to  Mary's  services  to  Mrs.  Jones  for  $20.00. 
Can  Mrs.  Jones  compel  Mary  to  work  for  her  at  the  salary  agreed  upon  by 
Mrs.  Smith?     Why? 

6.  Ames  and  Bates  were  partners  in  a  hardware  business.  Ames  bought 
Bates'  interest  in  the  business  for  $5000,  Bates  agreeing  never  again  to  engage 
in  the  hardware  business.  Within  a  month  after  the  dissolution  Bates  had 
again  started  in  the  hardware  business  in  the  same  city.  What  could  Ames  do 
about  it?     Why? 

7.  On  June  15,  1915,  Ames  loaned  Bates  $200.00  in  cash  in  the  presence 
of  Call.  A  month  later,  Bates  and  Call  were  both  killed  in  a  train  wreck,  Ames 
sued  the  estate  of  Bates  for  $200.     Was  he  allowed  to  recover?     Why? 


CHAPTER  XIV 


DRAFTS 

[a.    Drawer 
'1.   Original ^b.   Drawee — Acceptor 


T.   Parties^ 


(c .    Payee 


{a.    Indorser 
b.   Transferrer  without 
Indorsement 


II.   r'orms   < 


1 .  Payable  on  Demand 

2.  Payable  at  Sight 

3.  Payable  after  Sight,  or  Time 

Instruments 


III.  Acceptance  < 


'1 .   Express 

2.  Implied 

3.  Virtual 

4.  For  Honor 

5.  Qualified 


143.  Introduction.  The  most  common  kinds  of  negotiable 
instruments  are  the  draft,  or  bill  of  exchange,  the  note,  and  the 
check.  The  oldest  of  these  is  the  draft,  and  it  was  the  first  one 
to  be  recognized  by  the  law  courts  as  negotiable. 

Drafts  were  originally  called  bills  of  exchange,  a  name 
derived  from  the  French  billet  de  change,  and  were  first  used  to 
avoid  the  dangers  in  sending  actual  money  a  long  distance. 


EXAMPLES 


1.  Suppose  A,  in  Havana,  Cuba, 
owes  B,  in  Chicago,  five  thousand 
dollars.  C,  who  is  about  to  go  to 
Havana  from  Chicago,  pays  B  five 
thousand  dollars,  and  receives  from 
B  a  draft  which  entitles  him,  on 
reaching  Havana,  to  receive  five 
thousand  dollars  from  A.  All  the 
parties  are  accommodated  by  this 
arrangement,  for  A  does  not  have 
to  risk  his  money  by  sending  it  to 


104 


DRAFTS  105 

Chicago,  B  gets  his  money  without  danger  of  loss,  and  C  travels  to  Havana 
without  the  risk  of  being  robbed  en  route. 

2.  Ames,  of  Chicago,  owes  Bates,  of  New  York.  Bates  draws  on  Ames, 
naming  a  New  York  bank  as  payee.  The  New  York  bank  sends  the  draft  to  a 
Chicago  bank,  which  collects  from  Ames  and  credits  the  New  York  bank, 
which  then  pays  Bates. 

Ames  Bates 


Chicago  Bank  N.  Y.  Bank 

144.  A  Draft  is  an  unconditional  order  in  writing,  signed  by 
the  person  giving  it,  directing  a  second  person  to  pay  to  a  third 
person,  or  order,  or  bearer,  a  certain  sum  of  money  on  demand, 
or  at  a  fixed  future  time.  A  draft  drawn  on  a  person  in  another 
country,  or  another  state  in  the  Union,  is  called  a  foreign  bill  of 
exchange,  while  if  it  is  drawn  on  a  person  in  the  same  state,  it  is 
called  an  inland  bill  of  exchange. 

145.  Parties  to  a  Draft.  There  are  three  original  parties  to 
a  draft,  and  there  may  be  any  number  of  subsequent  parties. 
The  person  who  signs  the  draft  is  the  drawer ;  the  one  to  whom  it 
is  addressed  and  who  is  asked  to  pay  it,  is  the  drawee;  and  the 
one  to  whom  it  is  payable  is  the  payee.  U  the  draft  is  accepted 
by  the  drawee  (i.e.,  he  agrees  to  pay  it),  he  is  then  called  the 
acceptor.  The  subsequent  parties  to  a  draft  are  those  to  whom 
it  is  passed  either  by  indorsement  and  delivery  or  by  delivery 
without  endorsement,  after  the  first  delivery. 

EXAMPLE 
■ ioo**4uon**SQ 


P»« 


f^^^^^^£.'t^V-  ' 


wmtcxouMOC 


JIP  ^ 


^ 


In  the  above  form,  Robbins  is  the  drawer,  Young  the  drawee, 
and  Parker  the  payee.     The  substance  of  it  is  that  Robbins 


106  DRAFTS 

requests  Parker  to  demand  $500  from  Young,  and  at  the  same 
time  requests  Young  to  pay  this  amount  to  Parker. 

146.  Acceptance  of  a  Draft.  Young  is  under  no  obligation 
to  pay  Parker  according  to  the  demands  of  the  draft,  until  he 
"accepts"  it,  that  is,  until  the  draft  is  presented  to  him  and  he 
expresses  his  willingness  to  pay  it.  It  will  be  noticed  that  the 
draft  itself  contains  no  promise  from  Young  that  he  will  pay  it; 
in  fact,  until  it  is  presented  to  him,  he  may  not  even  know  of  its^ 
existence,  although  it  is  customary  for  the  drawer  to  notify  the 
drawee  that  he  will  draw  upon  him,  unless  there  is  an  understand- 
ing that  such  notice  is  unnecessary. 

147.  Form  of  Acceptance.  In  form,  an  acceptance  usually 
consists  of  the  word  "accepted"  written  across  the  draft  by  the 
drawee,  together  with  the  date  of  acceptance  and  the  signature 
of  the  drawee.  In  the  above  example  Young  would  accept 
the  draft  writing  across  its  face  the  words,  "Accepted,  March 
5,  1916,  L.  H.  Young."  He  is  then  obligated  to  pay  S500  to 
Parker,  or  to  any  person  to  whom  Parker  may  transfer  the 
instrument,  in  ten  days  from  the  date  of  acceptance.  (In 
states  allowing  days  of  grace,  he  would  be  given  three  additional 
days.)  Instead  of  the  word  "accepted,"  the  word  "seen,"  or 
"honored,"  is  frequently  used  by  acceptors  and  is  equally 
effective,  or  a  draft  is  accepted  if  the  drawee  merely  writes  his 
own  name  across  the  face. 

Acceptance  of  a  draft  must  be  in  writing  by  the  drawee  on 
the  draft  itself,  except  in  three  special  instances.  These  are: 
(1)  Implied  acceptance,  (2)  Virtual  acceptance,  (3)  Acceptance 
for  honor. 

148.  An  implied  acceptance  is  one  in  which  the  drawee, 
to  whom  a  draft  has  been  delivered  for  acceptance,  by  his  acts 
or  conduct  permits  the  payee  to  infer  that  he  has  accepted  the 
draft.  If  Parker  presented  the  draft  in  the  above  example  to 
Young  and  Young  retained  it,  saying  that  he  would  attend  to  it 
he  would  be  deemed  to  have  accepted  it. 

The  N.  I.  L.,  Sec.  137,  says  in  regard  to  this: 

"Where  a  drawee  to  whom  a  bill  is  delivered  for  acceptance  destroys  the 

same,  or  refuses  within  twenty-four  hours  after  such  delivery  (for  acceptance), 

or  within  such  other  period  as  the  holder  may  allow,  to  return  the  bill  accepted 

or  non-accepted  to  the  holder,  he  will  be  deemed  to  have  accepted  the  same. " 


DRAFTS  107 

149.  A  virtual  acceptance  is  a  promise  in  writing  to  accept 
a  draft,  but  which  written  promise  is  made,  not  on  the  draft 
itself,  but  on  a  separate  paper.  Such  an  acceptance  is  usually- 
made  before  the  draft  is  drawn.  Suppose,  in  the  above  example, 
Young  had  written  to  Robbins  prior  to  March  2,  saying  that  if 
Robbins  would  draw  on  him  he  would  accept  the  draft.  Young 
would  be  taken  to  have  accepted  the  draft  in  favor  of  any  person 
to  whom  his  promise  to  accept  had  been  shown  and  who  had 
relied  on  it.  Section  134,  N.  I.  L.,  states  the  limits  of  such  an 
acceptance,  as  follows: 

"Where  an  acceptance  is  written  on  a  paper  other  than  the  bill  itself,  it 
does  not  bind  the  acceptor  except  in  favor  of  a  person  to  whom  it  is  shown  and 
who,  on  the  faith  thereof,  receives  the  bill  for  value."* 

150.  An  acceptance  for  honor  is  an  acceptance  made  by 
some  person  other  than  the  drawee.  After  a  draft  has  been 
dishonored  by  the  drawee  and  protested,!  a  third  party  may  be 
induced  to  intervene  and  accept  the  paper  for  the  honor  of  the 
drawee  or  any  person  liable  on  the  draft.  This  must  be  with 
the  consent  of  the  holder. 

151.  Effect  of  Acceptance.  When  a  draft  is  accepted,  a 
direct  contract  arises  between  the  acceptor  and  the  holder,  and 
the  drawer  is  then  liable  to  pay  only  if  after  proper  presentment 
for  payment  the  acceptor  does  not  pay,  and  proper  notice  of  this 
failure  to  pay  is  given.  The  drawer  is  said  to  be  secondarily 
liable.  If  payment  is  refused  by  the  acceptor,  the  holder  may 
sue  the  acceptor  or  he  may  protest  the  paper  and  sue  the  drawer 
or  any  indorser. 

Acceptance  is  made  only  upon  presentation  of  the  instrument 
to  the  drawee,  and  the  drawee  may  require  that  such  presentment 
for  acceptance  shall  be  made  according  to  business  usage. 

152.  Qualified  Acceptance.  The  acceptance  may  be  either 
(1)  general,  or  (2)  qualified.  A  general  acceptance  is  one  by 
which  the  drawee  accepts  and  promises  to  pay  the  instrument  in 
the  exact  form  and  according  to  the  precise  demand  of  the 

*  The  Illinois  statute  omits  the  words,  "to  whom  it  is  shown  and." 
t  "Protested"  refers  to  the  action  taken  by  a  notary  public  after  a  draft 
has  been  dishonored.  He  certifies  that  he  presented  the  draft  and  that  it  was 
dishonored,  and  mails  notices  to  all  parties  named  in  the  draft.  This  is 
required  in  order  to  hold  such  parties  liable,  and  will  be  discussed  in  a 
later  chapter. 


108  DRAFTS 

instrument  which  is  presented  to  him.  A  qualified  acceptance 
is  one  by  which  the  drawee  promises  to  pay  the  instrument 
according  to  some  new  terms,  or  conditions,  not  contained  in  the 
draft  as  made  by  the  drawer.  A  qualified  acceptance  may  be 
treated  as  a  dishonor  by  the  holder  and  he  may  proceed  at  once 
against  the  maker,  protesting  the  draft  for  dishonor.  Or  he  may 
take  the  draft  with  the  qualified  acceptance,  in  which  event  he 
releases  the  drawer  and  all  prior  parties  unless  they  specifically 
give  their  assent. 

EXAMPLES 


No.  246.     $500.00  Chicago,  June  22,  1916. 

At  ten  days'  sight  pay  to  Joseph   Wilson  the  sum  of 
Five  Hundred  Dollars  at  the  First  National  Bank,  Chicago. 

(Signed)  Harvey  W.  Hulhurd. 

To  William  Young, 
Albany,  N.  Y. 


Young  may  make  a  general  acceptance,  if  he  writes  across  the  face  of  the 
instrument,  "Accepted,  William  Young,  June  25,  1916,"  or  "Seen,  June  25, 
1916,  William  Young,"  or  "William  Young."  The  particular  form  is 
immaterial. 

The  following  is  also  a  general  acceptance:  "Accepted,  June  25,  1916, 
payable  at  Merchants'  Saving  Bank,  Albany,  N.  Y.,  William  Young," 
because  the  place  of  payment  specified  in  the  acceptance  is  not  declared  to  be 
the  exclusive  or  only  place  of  payment. 

Young  may  also  make  a  qualified  acceptance,  if  he  writes  across  the  face 
of  the  draft  any  of  the  following  phrases: 

"Accepted,  June  25,  1916,  payable  at  Merchants'  Savings  Bank,  Albany, 
N.  Y.,  only,  William  Young." 

"Accepted,  June  25,  1916,  for  Two  Hundred  Dollars,  William  Young." 

"Accepted  if  Wilson  sends  me  the  money  necessary  to  pay  this,  June  25, 
1916,  William  Young." 

"Accepted  June  25,  1916,  to  be  paid  in  thirty  days,  William  Young." 

153.  The  Acceptor  Admits  by  his  act  of  acceptance  the  sig- 
nature of  the  drawer,  and  cannot  later  escape  from  his  promise 
to  pay  on  the  ground  that  the  signature  was  a  forgery.  He  also 
admits  that  he  has  funds  belonging  to  the  drawer,  or  is  himself 
willing  to  advance  the  money  necessary  to  pay  the  draft  when  it 
becomes  due,  and  that  the  drawer  was  a  person  competent  to 
make  a  legal  contract- 


DRAFTS  109 

The  acceptor  does  not  admit  that  the  body  of  the  instrument 
has  not  been  altered  since  it  left  the  drawer's  hands. 

154.  Transfer  of  a  Draft.  The  payee  of  a  draft  is  always 
its  first  holder.  The  meaning  of  the  language  used  in  negotiable 
paper,  whether  it  be  a  promise  or  a  direction,  is  to  pay  to  the 
person  named  in  the  paper,  or  to  any  one  whom  he  may  designate. 
A  draft  is  therefore  transferable  by  indorsement. 

Demand  Draft 


-zon.fin—  ^moTOKK .Tan.  27. y/Plf, 

On  Demand Jrz!^^^ 


MRtthaw  M.    Murphy 

Three  Hnnilrafl  h.  no/100 


,//y  ffalter  H.   Underwood. \r->^  —^^^^^/O      /? 

in  4  Anne  St..  ^S^^.^^^^.^^^C:;'  UJKrJ^..i.,^t^^ 

fyY/>:   42 Hew  Orleans.   la.  t 


Baldwin  is  the  drawer,  Murphy  the  payee,  and  Underwood  the  drawee. 
This  is  a  foreign  bill  of  exchange,  because  drawn  by  a  resident  of  one  state  upon 
a  resident  of  another.  Murphy  may  endorse  this  to  another  party,  who, 
upon  its  dishonor  by  Underwood  would  bring  it  back  to  Murphy  as  indorser. 
No  presentment  for  acceptance  is  necessary,  because  it  is  payable  upon 
presentment. 

Sight  Draft 


—Ann.no—                                                          St.Lonla.   Mo..    Jan.   27.    y/.9/ '^ 
At  Sifht. - ^^^/jy 


yAry/?»'/^yr//^     Matthew  M.  Murphy- 


Pour  Hundred  &  no/100- 


,//r     Walter  H.   Underwood 1  ^^^-^f^ 

tyy/}:     43 Kew  Orleana.    La. 


The  parties  are  the  same  as  in  the  preceding  example.     In  states  which 
have  adopted  the  X.  I.  L.  the  qualities  are  the  same  as  in  a  draft  payable  on 


110 


DRAFTS 


demand.  In  some  other  states,  days  of  grace*  are  allowed  on  sight  drafts, 
although  denied  on  drafts  payable  on  demand,  and  presentment  for  acceptance 
is  necessary  before  the  drawee  can  be  charged  with  the  obligation  of  paying. 

Time  Draft 


<Jf  —500.00--  St.    louls.    Mn.,     .Tan-    ?7, y/9/h. 

Thirty    .^Aya    ft-Pt.ar    H<ght. ilZ^/;^^ 

yme^/9V^!9'^- Ma-tthww  M.-  Murphy 

yiTB   Hundred  &  no/100  


Uau<^^/yM;<ve^^yatf/:/^/:^j^^y/m'.Jam^ 


, //r"     Walter  H.  Underwood 


4  Anne  Street 

Hew  Orleans,  La. 


^xzl^^-ffr^...*-^ — (2?.  /'^Ja.J^r/^.rt^^ 


'Yh/s.  parties  are  the  same  as  in  the  preceding  examples.  Presentment 
to  Underwood  for  acceptance  is  necessary  in  order  to  fix  the  time  when  the 
thirty  days  begins  to  run,  and  also  in  order  to  charge  the  parties  with  their 
obligations;  that  is,  to  charge  Underwood  with  paying  $500  to  Murphy,  or  a 
subsequent  holder,  and  to  charge  Baldwin  with  paying  if  Underwood  does  not. 

Acceptance 


m*«i*m\MtMiblimi4<(*U<i(<Mtiimt*\UM(itmtMtr(*t«itiMii'M(iM*'^^ 


-^-^  2^^^y/.^.m'^. 


r>^^.^. 


\-~^A/^> 


'^rst^^ 


'.,^~- 


<ir/U'^ 


This  is  an  inland  bill  of  exchange.  Hatch  is  the  drawer,  Welsh  the 
payee,  and  Sumner  the  drawee.  When  Welsh  presents  the  draft  to  Sumner, 
Sumner  accepts  it  by  writing  across  the  face,  "Accepted,  March   18,  1915, 

*  Days  of  grace  are  three  extra  days  added  to  the  date  on  which  an  instru- 
ment is  due  and  payable,  during  which  time  it  could  not  be  sued  upon  or 
treated  as  over-due.  They  have  been  abolished  in  the  majority  of  states. 
Arkansas,  Mississippi,  and  Wyoming  still  allow  days  of  grace  on  all  drafts 
and  notes;  and  Maine  Massachusetts,  Michigan,  Minnesota,  Rhode  Island, 
South  Ceirolina,  and  Texas,  on  sight  drafts  alone. 


DRAFTS  111 

George  Sumner."  After  this  is  done,  Sumner  is  bound  to  pay  the  $45  sixty 
days  after  March  IS,  to  Welsh,  or  to  any  person  to  whom  Welsh  has  endorsed 
the  paper. 

If  Sumner  had  dishonored  the  bill  and  it  had  been  protested  by  a  notary 
public,  Ward,  a  third  party,  might  have  accepted  it,  with  the  consent  of  Welsh. 
He  would  then  have  bound  himself  to  pay  it  if  Sumner  should  again  refuse. 

REVIEW    QUESTIONS 

1.     Inspect  the  following  draft: 


Castine,  Me.,  Jan.  5,  1860. 

For  value  received,  please  pay  to  the  order  of  G.  F.  and 
C.  W.  Tilden  forty  dollars,  and  charge  the  same  against  what- 
ever amount  may  be  due  me  for  my  share  offish  caught  on  hoard 
schooner  "  Morning  Star,"  for  fishing  season  of  1860. 

Yours,  etc.. 

To  Messrs.  Adams  &  Co.  ^^"^'^  ^-  ^^^'- 

Accepted  to  pay. — Adams  &  Co.,  Jan.  6,  1860 


Is  this  a  negotiable  instrument?  Why?  Who  is  the  maker?  payee? 
drawee? 

2.  Archer  in  Boston  purchases  furniture  of  Wilson  in  Grand  Rapids, 
Michigan,  of  the  value  of  $200.  Wilson  ships  the  furniture,  and  then  draws 
on  Archer  for  the  price.  How  does  he  do  this?  Write  a  draft,  designating 
a  Boston  Bank  as  the  Continental  Exchange  Bank.  The  bank  in  Grand 
Rapids  is  The  First  National  Bank.      How  does  Wilson  secure  his  money? 

3.  Inspect  the  following  draft: 


$zz^^'^^         La  Crosse,  Wis.,  U^^..A,lZ^19 AS,  No.  U^4 

'VIer'%  The  Union  State  Bank 

Value  received  and  charge  to  the  account  of 

To^^-t^^^.>^ 


When  this  draft  is  presented  to  Clarke,  he  writes  across  the  face, 
"Accepted,  June  22,  to  be  paid  half  in  money  and  half  in  bills,  M.  M.  Clarke." 
Is  this  a  proper  acceptance?     Why?     What  is  its  effect? 

4.     How  is  a  bill  of  exchange  dishonored?     What  is  the  result? 


CHAPTER  XV 


CHECKS 

!a.  Drawer 
b.  Drawee 
c .    Payee 


I.   Parties 


[2.  Subsequent' 


II.  Form" 


1.  Ordinary 
a. 

2.  Special^ Q 
d. 


a.  Indorsers 

b.  Transferrers  with- 

out Indorsement 

c.  Indorsees  and 

Transferees 


Certified  Checks 
Cashier's  Checks 
Bank  Drafts,  or  Checks 
Certificates  of  Deposit 


155.  A  Check  is  an  order  drawn  against  a  deposit  of  funds 
in  a  bank,  for  the  absolute  payment  on  demand  of  a  definite 
sum  of  money  to  a  certain  person,  or  his  order,  or  to  the  bearer. 
A  check  is  similar  to  a  draft,  except  that  it  always  presupposes 
the  existence  of  funds  on  deposit,  without  which  it  is  worthless. 

All  that  has  been  said  in  reference  to  the  use  and  transfer 
of  a  draft  applies  with  equal  force  to  a  check,  except  that  accept- 
ance has  no  function  in  connection  with  checks,  because  they 
are  payable  on  demand,  and  presentment  for  acceptance  is  not 
required.     Nor  is  a  check  ever  entitled  to  days  of  grace. 

There  are  three  original  parties  to  a  check.  These  are  the 
drawer,  or  the  one  who  signs  it;  the  drawee,  which  is  always  a 
bank;  and  the  payee,  who  is  entitled  to  receive  the  money.  The 
contract  represented  by  the  check  is  between  the  bank  and  the 
drawer,  consequently  if  for  some  reason  the  bank  refuses  to  pay 
the  check,  the  holder  cannot  maintain  an  action  against  the 
bank,*  and  his  remedy  is  against  the  drawer  alone.     For  the  same 

*  In  a  few  states  a  check  is  regarded  as  an  assignment  of  the  deposit,  and 
where  this  is  the  case  the  holder  is  given  a  right  to  sue  the  bank  if  the  payment 
of  a  check  is  refused  on  demand.  This  is  the  law  in  Illinois,  Kansas,  Kentucky, 
Nebraska,  South  Carolina,  Texas,  and  Wisconsin. 

112 


CHECKS  113 

reason  the  payee  cannot  stop  payment  on  a  check  by  notifying 
the  bank,  although  the  drawer  can  do  so. 

156.  Relation  to  Banking.  Checks  are  of  great  commercial 
importance.  Business  men  do  not  as  a  rule  have  proper  facilities 
for  protecting  their  ready  money  from  either  fire  or  robbers. 
The  bank  offers  them  this  protection  without  charge,  its  compen- 
sation being  the  use  which  it  can  make  of  the  money  so  deposited 
with  it,  which  it  can  expect  will  be  left  for  some  time. 

In  some  instances  banks  fail,  and  the  depositors  lose  their 
money.  The  only  cases  in  which  the  holder  of  a  check  may  lose 
his  money  because  of  such  a  failure  are  those  in  which  he  has  long 
delayed  in  presenting  his  check  for  payment.  It  is  his  duty  to  go 
to  the  bank  with  reasonable  promptness  (see  Sec.  212  of  this  text) 
and  secure  the  money  which  the  drawer  has,  by  means  of  the 
check,  requested  the  bank  to  pay.  If  he  delays  beyond  a  rea- 
sonable length  of  time,  and  the  bank  fails,  he  cannot  recover  the 
money  from  the  drawer,  but  must  himself  bear  the  loss.  This 
rule  is  stated  in  Section  186,  N.  I.  L.,  as  follows: 

"A  check  must  be  presented  for  payment  within  a  reasonable  time  after 
its  issue  or  the  drawer  will  be  discharged  from  liability  thereon  to  the  extent 
of  the  loss  caused  by  the  delay." 

157.  Form  of  Check.  To  be  negotiable,  a  check  must 
conform  to  the  general  requirements  for  negotiability.  For 
instance,  it  must  contain  the  negotiable  words  "or  order,"  or  "or 
bearer."*  It  is  not  safe  to  make  a  check  payable  to  cash  or  to 
currency  or  to  bearer  unless  they  are  to  be  cashed  at  once,  for 
if  lost  or  stolen  it  could  be  cashed  by  the  finder  or  thief  and  the 
rightful  payee  would  have  no  redress  nor  could  the  drawer  claim 
that  the  bank  had  been  careless  in  making  payment.  The  safe 
method  is  to  make  checks  payable  to  the  order  of  a  designated 
person,  for  in  that  case  the  bank  has  no  right  to  pay  any  one 
except  that  person,  or  his  order. 

158.  Special  Forms  of  negotiable  instruments,  which  are 
in  their  essentials  checks,  are  (1)  certified  checks,  (2)  cashier's 
checks,  (3)  bank  drafts,  and  (4)  certificates  of  deposit. 


*  Checks  payable  "to  cash"  and  "to  currency"  are  considered  payable  to 
bearer.     Checks  payable  to  "Self"  must  be  indorsed  before  they  are  negotiable. 


114  CHECKS 

Check 


Chicago. I LL.^/k^^   % 191^2^     N<?_Z2=^ 

The  First  National  Baidtof  Englewood^-ioa 

Pay  TO  THE  ORDER  OF 


J<^i^l^....-p^y^hAp  ^^>^  %  UT-.'T 


^<:^^.<y'y^^^.^..</^l^^ /i<^/-e.^:^  ^'^ '-  Dollars 


-i^ 


/^.^i^^y 


iSf^^^^ 


A  check  is  a  form  of  draft.     Note  the  similarity. 

159.  Certified  Checks.  If  the  payee  who  is  about  to  receive 
a  check,  perhaps  as  payment  for  goods,  is  doubtful  whether 
the  drawer  has  to  his  credit  in  the  bank  the  amount  of  money 
represented  by  the  check,  or  is  fearful  that  although  the  drawer 
may  have  the  money  in  the  bank  at  the  time  of  giving  the  check 
it  may  be  withdrawn  before  his  check  is  paid,  he  may  insist  on 
a  certified  check,  or  he  may  accept  the  check  and  himself  take 
it  to  the  bank  for  certification  at  once.  A  certified  check  is  an 
ordinary  check,  across  the  face  of  which  is  written  a  certifi- 
cation by  the  bank.  The  bank  makes  this  certificate  by  writing 
or  stamping  across  the  face  of  the  check  the  word,  "Certified," 
or  some  word  of  similar  import,  together  with  the  date  and 
the  signature  of  a  proper  official  of  the  bank.  By  this  certifi- 
cation the  bank  agrees  to  pay  the  check.  It  then  reserves  the 
amount  of  the  check  out  of  the  drawer's  deposit.  Until  this  is 
done  there  is  only  the  original  contract  between  the  drawer  and 
the  bank;  after  it  is  done  a  new  contract  is  created  between  the 
bank  and  the  payee.  After  certification  a  bank  is  obliged  to  pay 
the  certified  check,  even  though  it  should  prove  to  be  a  forgery, 
for  the  rule  is  that  a  bank  is  obliged  at  its  peril  to  know  the  sig- 
natures of  its  depositors,  and  if  it  negligently  certifies  a  forged 
check,  or  if  it  pays  a  forged  check,  it  must  assume  the  risk. 
Certification  does  not,  of  course,  furnish  protection  against  a 
subsequent  alteration  of  the  check;  it  is  a  guarantee  to  pay  the 
check  as  it  read  at  the  time  of  certification. 


CHECKS 
Certified  Check 


lis 


160.  Cashier's  Checks  are  sometimes  issued  by  banks 
instead  of  certificates  of  deposit  or  drafts.  A  cashier's  check  is 
in  form  simply  an  ordinary  check,  drawn  on  the  bank  by  the 
cashier  in  his  official  capacity,  and  made  payable  to  the  depositor 
or  someone  he  may  designate.  It  is  payable  on  demand,  and  has 
the  advantage  that  the  payee  may  usually  receive  payment  from 
banks  in  other  cities,  if  he  can  identify  himself  as  the  payee 
named,  without  waiting  for  it  to  be  returned  to  the  drawee  bank. 
The  cashier's  check  will,  however,  ultimately  have  to  be  returned 
by  any  bank  so  advancing  money  on  it,  to  the  issuing  bank, 
for  payment. 

Cashier's  Check 


161.  A  Bank  Draft  differs  from  the  ordinary  cashier's  check 
in  that  instead  of  the  drawee  being  the  bank  issuing  the  check, 
the  drawee  is  a  bank  in  some  other  city,  usually  Chicago,  New* 
York,  St.  Louis,  San  Francisco,  Milwaukee,  or  other  central 
banking  point.     This  has  a  superiority  over  the  ordinary  cashier's 


116 


CHECKS 


check  in  that  it  does  not  have  to  be  returned  to  the  issuing  bank 

for  payment,  but  is  payable  at  the  city  of  the  drawee  bank. 

Bank  Draft  or  Check 


^iSir> '.^4^.^.1^^^ 


Cmicaoo^- 


.Srt     lai  J7 


FORTDEARIQRN  NA:nONALSANIC 


'^^^^  0. 


i^ 


DfiUAM 


A^XSRBUBIVBD.AiaXUUaOBTHBaAItBTO.ADOOinrror 


-\ 


,c:;^f^^„-,g--^^::^:^^^r^^^ 


162.  A  certificate  of  deposit  is  another  form  of  voucher  for 
money  deposited  in  a  bank.  Instead  of  desiring  to  open  a  check- 
ing account,  the  depositor  may  merely  wish  to  leave  the  money 
at  the  bank  for  safe-keeping  indefinitely  or  for  a  specified  period 
of  time  on  the  promise  of  the  bank  to  pay  him  interest.  If  this 
is  done  the  depositor  receives  a  certificate  of  deposit  which  states 
the  conditions  of  the  deposit. 

Money  deposited,  and  represented  by  a  certificate  of  deposit, 
cannot  be  drawn  out  by  check.  If  a  portion  of  it  is  desired, 
the  certificate  may  be  presented  at  the  bank,  and  the  payment 
written  on  the  back  of  the  certificate,  or  the  old  certificate  may 
be  surrendered  and  a  new  one  issued  for  the  amount  remaining 
undrawn.  The  latter  method  is  considered  to  be  the  better. 
Certificate  of  Deposit 


^^S 


^umhMj^^^^^im^^im^^ 


'^u 


IQI-*^ r//JS.r. 


J-(h^^.,/^. 


CMKlKtUlWlltll^ltNll 


/«:>nv^.»«.ooo.oon.  /"»/"r/fiHfi/rmi///iH//i  fAiCu.    mr/i/A>/rtmi/tf/rfn//t/ii//re)/tt/JnfniJlet/' 


CHECKS  117 

163.  Post-dating.  If  a  check  is  dated  ahead,  it  is  of  no  effect 
until  the  day  of  its  date.  There  is  always  a  possibility  that 
there  may  not  be  a  balance  to  the  credit  of  the  drawer  sufficient 
to  cover  the  check  when  due,  and  persons  receiving  post-dated 
checks  should  bear  this  in  mind. 

Persons  issuing  post-dated  checks  should  bear  in  mind  the 
possibility  of  the  humiliation  and  injury  to  credit  which  would 
result  if  the  check  were  dishonored  by  the  bank. 

If  a  check  bearing  the  current  date  is  given  in  payment  of  an 
existing  debt,  and  there  are  no  funds  on  deposit  to  cover  it,  the 
person  issuing  it  may  suffer  only  the  humiliation  of  having  it 
returned  to  the  one  who  held  it,  marked  "Not  sufficient  funds" 
by  the  bank.  But  if  it  be  given  as  consideration  for  a  new  con- 
tract, the  drawer  may  find  himself  liable  for  obtaining  goods  or 
money  under  false  pretenses. 

164.  Canceled  checks  operate  as  receipts.  If  a  check  be 
given  in  discharge  of  a  debt,  the  payee  can  secure  his  money  from 
the  bank  only  by  indorsing  his  own  name  upon  the  back  of  the 
check,  and  this  indorsement  is  evidence  that  the  payee  got  his 
money. 

When  the  bank  submits  a  statement  to  a  depositor  at  the  end  of  a  month, 
or  other  convenient  interval,  all  checks  which  have  been  paid  are  returned  to 
him,  and  in  this  way  he  has  proof  that  he  paid  to  the  payee  the  amount  of  the 
check.  On  account  of  this  feature  of  checks,  they  are  much  used  in  the  pay- 
ment of  debts  by  business  men. 

REVIEW    QUESTIONS 

1.  Jordan  places  $500  in  the  People's  Bank  as  a  checking  deposit.  He 
then  draws  a  check  payable  to  Mills,  or  order,  for  $200.  Mills  presents  the 
check  promptly  at  the  bank  for  payment,  but  is  refused.  What  rights,  if  any, 
has  Mills  (1)  against  the  bank?  (2)  against  Jordan?  Has  Jordan  any  rights 
against  the  bank?     Why? 

2.  Morgan,  with  a  checking  deposit  of  $800  in  the  Mercantile  Bank, 
issues  a  check  for  $400  payable  to  Barnes.  Barnes  neglects  to  present  the 
check  for  payment,  and  two  months  later  while  the  check  is  still  in  his  pos- 
session the  bank  fails,  paying  its  depositors  fifty  cents  on  the  dollar.  What 
rights  has  Barnes  (1)  against  the  bank?   (2)  against  Morgan? 

3.  J.  A.  Simpson  issues  a  check  on  the  Merchants'  Bank  for  $700  payable 
to  the  order  of  Finney.  Finney  presents  the  check  at  the  bank  for  certification, 
and  Sullivan,  the  assistant  cashier,  mistaking  the  signature  for  that  of  J.  D. 


118 


CHECKS 


Simpson,  certifies  it.  As  a  matter  of  fact  J.  D.  Simpson  has  a  large  checking 
account,  while  J.  A.  Simpson  has  an  account  of  less  than  $30.  Finney 
indorses  the  check  to  Thompson,  who  five  days  later  presents  it  at  the  bank 
for  payment,  which  is  refused.  Who  must  bear  the  loss?  What  rights  has 
Thompson?     Finney?     The  Merchants'  Bank? 

4.  Stevens  draws  a  check  on  the  Farmers'  Bank  payable  to  Jones  for 
$100.00,  which  is  certified  by  the  farmers'  Bank  and  delivered  to  Jones. 
Jones  loses  the  check  and  it  ultimately  turns  up  in  the  hands  of  Brown,  an 
innocent  holder  for  value.  By  this  time  the  check  has  been  altered  in  amount 
to  $1000.00  and  Jones'  signature  has  been  forged  on  the  back.  What  amount, 
if  any,  can  Brown  require  the  bank  to  pay  him? 

5.  What  rights,  if  any,  has  Jones  in  the  above  example? 


h  O 


fti^    yet.  .^<^/. 


^^ 


RAy  TO  MYSKLF  OI<fI.Y       ^.///^ 


-.^ 


1-^g^-^^- 


_fi)3&£^BS> 


—^^^^k-ff-^^.yi^^  o/  y^n'^^f-i^^^,^ 


6.  A  forger  disguised  himself  as  Geo.  D.  Smith,  walked  into  the  First 
National  Bank  of  Englewood  and  filled  out  the  counter-check  shown  above. 
His  disguise  was  perfect  and  his  imitation  of  Smith's  signature  was  perfect. 
The  cashier  did  not  hesitate  to  hand  him  the  money.  Who  suffered  the 
loss?     Why? 


CHAPTER  XVI 
NOTES 

{a.  Maker 
b .  Payee 


I.  Parties< 


V 


2.  Subsequent" 


'a.  Indorsers 

b.  Transferrers  with- 

out Indorsement 

c.  Indorsees 


II.  Kinds 


P- 


Payable  to  Bearer 


(2.  Payable  to  Order 
fl.  Ordinary 
[2.  Special- 


jl.  Ordinary 
III.  Forms<         (a.   Judgment  Notes 

(b.  Collateral  Notes 


,IV.  Special  Matters^ 


[1 .  Accommodation  Parties 
[2.  Incomplete  Instruments 


165.  Definition.  A  negotiable  promissory  note  is  a  writter*. 
promise  by  one  person  to  pay  to  some  other  person  therein 
named,  or  to  his  order,  or  to  bearer,  a  fixed  sum  of  money,  at  all 
events,  and  at  a  time  specified  therein  or  at  a  definite  time  which 
must  certainly  arrive.  To  be  negotiable  a  note  must  also  possess 
all  the  essential  elements  of  negotiable  paper. 

166.  Parties.  There  are  two  original  parties  to  a  note. 
The  maker  is  the  one  who  signs  it,  agreeing  to  pay  it.  The 
payee  is  the  one  to  whom,  or  to  whose  order,  it  is  made  payable. 
In  the  note  above,  William  L.  Duncan  is  the  maker  and  James 
W.  Hamilton  is  the  payee.  The  maker  of  a  note  may  make  it 
payable  to  himself  or  order,  but  this  requires  that  it  be  indorsed 
by  him,  that  is,  that  he  again  write  his  name  across  the  back, 
before  it  can  be  put  into  circulation. 

119 


120 


NOTES 


Form  of  Note 


Wtmnnn090vnta0vmtmnt9tm%ftmmmmfamm^^'^ 


^    111..    Sept.    IS.     ^i^l5 


/■/^        nnlon  national  Bank 


^C^ZMca^A^cen^ee^  with  interest  at  Gjt  per  annum 


167.  Joint  and  Several  Notes.  A  note  which  is  signed  by  a 
single  maker  is  a  several  note,  for  he  alone  is  liable.  When  more 
than  one  name  appear  as  signatures  on  the  face  of  the  note, 
that  is,  when  there  are  two  or  more  makers,  the  question  arises 
as  to  whether  there  is  a  several  promise  by  each  or  only  a  joint 
promise  by  all.  This  is  the  same  question  that  arises  under 
joint  and  several  contracts,  previously  discussed  in  the  chapter 
on  Contracts.  If  the  note  be  drawn,  "We  promise  to  pay,  etc.," 
and  is  signed  by  two  or  more  parties,  it  is  a  joint  note.  A  note 
signed  by  more  than  one  person  and  beginning,  "I  promise," 
or  "We  or  either  of  us  promise,"  is  several  as  well  as  jcfint.  In  a 
joint  and  several  note  the  holder  can  sue  all  the  makers  together, 
or  he  may  sue  them  separately,  for  in  such  a  note  each  assumes 
the  entire  responsibility  for  paying  the  entire  sum.  If  the  note 
be  joint  only,  all  the  makers  must  be  sued  together.  At  common 
law  it  is  well  settled  that  if  one  of  the  joint  makers  dies,  his  estate 
is  discharged,  and  the  survivor,  or  survivors  alone,  can  be  sued. 
This  is  not  true  in  the  case  of  a  joint  and  several  note.  Statutes 
in  some  states  have  changed  this  rule,  so  that  even  by  a  joint 
note  the  estate  of  the  deceased  is  bound,  while  others  have 
accomplished  the  same  result  by  abolishing  all  distinctions 
between  joint  and  several  notes,  making  all  obligations  signed 
by  two  or  more  parties,  joint  and  several.     (See  Section  26.) 

168.  Essentials.  While  in  commercial  usage  it  is  customary 
to  print  forms  for  notes  with  the  words  "value  received,"  and  to 
make  them  payable  at  a  bank,  neither  of  these  things  is  necessary 


NOTES  121 

to  impart  negotiability,  according  to  the  N.  I.  L.,  and  according 
to  the  rules  of  a  majority  of  the  states  which  have  not  adopted 
the  uniform  act.  A  note  in  the  following  form  possesses  every 
requirement  essential  to  its  negotiability: 


.JIQ9:99..  St.  Louis,  Mo.,  .^AVklQJOJJ, 

rr^Tr^:Ct?.x!l^.^£^ZTr^r?rT^AFTER  date. .{..promise  to  pay 

TO  the  order  oF^y^:::ry7::^:?:::J^j3}9i!}..^9i^PA(iV'T:yr:y:7r:r:: 

THE  SUM  OF.9j}?Ay'Jl4r?^_an4_y/jgo_'2:^^^ 

Casper  Whiting. 


It  is  payable  absolutely,  within  a  specified  time,  in  money, 
to  a  person  named,  and  is  an  instrument  in  writing  with  words 
of  negotiability.  Provisions  for  the  payment  of  interest,  state- 
ments of  the  consideration,  place  of  payment,  and  even  a  pro- 
vision that  the  maker  agrees  to  pay  a  reasonable  attorney's 
fee  in  case  collection  be  made  by  suit,  can  be  added. 

In  some  states  where  the  N.  I.  L.  has  not  been  adopted  the  addition  of  a 
provision  regarding  attorney's  fees,  or  of  a  seal  after  the  name  of  the  maker, 
is  held  to  destroy  the  negotiability  of  the  instrument. 

169.  Transferability.  Negotiable  notes  may  be  transferred 
by  indorsement  the  same  as  accepted  drafts.  The  payee  becomes 
the  first  indorser.  Subsequent  parties  who  acquire  rights  in 
the  note  by  indorsement  and  delivery  or  delivery  without 
endorsement  may  also  become  indorsers  by  writing  their  names  on 
the  back  of  the  note  and  transferring  it  to  another.  A  person 
who  becomes  an  indorser  in  this  manner  also  enters  into  a  special 
contract  with  the  parties  who  acquire  rights  under  his  indorse- 
ment, the  nature  of  which  contract  will  be  discussed  in  a  later 
chapter.  All  notes,  except  those  payable  to  bearer  or  indorsed 
in  blank  or  to  bearer,  must  be  indorsed  in  order  to  be  trans- 
ferred. If  they  are  delivered  by  a  holder  to  a  subsequent  party 
without  indorsement,  the  latter  has  a  right  to  demand  the 
indorsement.      (Section  49  N.  I.  L.) 


122  NOTES 

170.  An  Accommodation  Note  exists  when  the  maker,  or 
one  of  the  makers  if  the  note  be  joint,  has  without  receiving 
any  consideration  signed  it  for  the  accommodation  of  the  payee 
or  joint  maker,  thereby  enabling  the  latter  to  more  readily  nego- 
tiate it. 

The  party  thus  lending  his  credit  is  called  the  accommodation  party  and  is 
defined  by  Sec.  36  of  N.  I.  L.  as  "one  who  has  signed  the  instrument  as  maker, 
drawer,  acceptor  or  indorser,  without  receiving  value  therefor,  and  for  the 
purpose  of  lending  his  name  to  some  other  person." 

The  accommodation  party  is  liable  to  all  subsequent  holders 
in  due  course.  If  he  suffers  any  loss  he  may  recover  from  the 
party  whom  he  accommodated,  the  latter  obviously  being  unable 
to  enforce  the  instrument  against  the  one  who  accommodated  him. 

171.  Incomplete  Notes.  Another  way  to  loan  credit, 
which  is  sometimes  adopted  when  the  exact  amount  needed 
cannot  be  determined  at  the  time  the  loan  is  made,  is  to  issue  a 
note  in  which  the  space  for  the  amount  is  left  blank,  the  payee 
being  given  authority  to  fill  in  the  blank  up  to  a  specified  amount. 
Issuing  such  notes  is  an  extremely  dangerous  practice,  and  should 
be  avoided  because  the  authority  given  may  be  exceeded,  and  if 
the  note  then  passes  into  the  hands  of  a  holder  in  due  course  the 
maker  will  have  to  pay  it,  even  though  at  great  loss. 

EXAMPLE 

Ames  gave  Bates  a  note  in  which  the  space  for  the  amount  was  left  blank, 
jvith  the  understanding  that  Bates  would  buy  between  $400.00  and  $500.00 
worth  of  goods,  filling  in  the  amount  when  his  purchase  was  completed.  Bates 
bought  from  Call  $1,000.00  worth  of  goods,  filled  in  the  amount  $1,000.00,  and 
endorsed  the  note  to  Call.  Call  sued  Ames  and  collected  $1,000.03,  as  Ames 
was  not  able  to  show  that  Call  knew  of  the  restriction  that  Ames  had  placed 
upon  Bates. 

172.  Frequently  the  date  of  payment  and  the  name  of  the 
payee  are  left  blank.  The  rule  of  the  Law  Merchant,  which  has 
been  adopted  by  the  N.  I.  L.,  is  that  any  holder  has  the  right  to 
fill  in  these  blanks  so  as  to  make  a  complete  instrument,  provided 
the  note  was  actually  delivered. 

173.  Judgment  Note.  A  judgment  note  is  an  ordinary  note 
to  which  is  added  a  "power  of  attorney,"  enabling  the  holder  to 
secure  a  judgment  for  the  amount  due  (and  frequently,  at  any 


NOTES  123 

time,  regardless  of  the  maturity  of  the  note)  without  the  prelimi- 
nary steps  of  serving  a  summons  and  having  a  trial.*  By 
including  this  added  provision  the  maker  waives  his  right  to  be 
heard  in  court  before  the  entry  of  the  judgment.  The  advan- 
tages of  such  a  note  are  with  the  holder. 

To  this  "power  of  attorney  to  confess  judgment,"  as  it  is 
called,  are  generally  added  (1)  a  waiver  of  exemption  laws,  and 
(2)  a  stipulation  for  the  addition  of  attorney's  fees.  As  we 
have  seen,  not  all  of  the  property  of  a  debtor  is  subject  to  levy 
under  an  execution  to  enforce  a  judgment,  by  virtue  of  the 

Judgment  Note 


yOf/^y  ^/^yy::m/^^^J///nn/yyfff//7^.l'  .^^-r^L^?^ yim^/uu/^. 


-/hd  to  seaire  the  payment  of sai(f amount  ^ZkL  herebi/  authorize,  irrewcaify,  any  attontof  of  any  Court  of 
Mecord  to  appear  (bKOL^^in  siuii  Court. in  term  lime  ar\-aaitiai,at  any  time  hereafur,  andcon^ss  a  Judgment 
y^Owiit  process,  mfiavr  of  the  Twider  of  this  ?^'o<e,fcrsudi  ameiunt  as  may  appear  to  be  unpaid  thereon ,    together 

wiA  costs  ""d ~-         dollars  attorneys  fees,  and  to  waive  and  release  al/  errors  %vhich  may  intervate 

in  any  sueh proceedings,  and  consent  to  immediate  enrjuttgn^  upon  sachjudgmau^jiarby  ratifying  and  con- 
firmiag  aUthat  ,^t^\^/  .saidattonuymofdoba^Stuiiie^.yt  /^^^^-^  . 


^S*^>'ajTtr3jajajfa<ttriapafajafaj^rafatP8ifatiwwitfi^ 


exemption  laws  of  the  several  states.  The  right  to  such  exemp- 
tions is  usually  waived  in  a  judgment  note.  In  the  typical  form 
of  note  printed  below  there  is  also  a  provision  permitting  a 
five  per  cent  addition  to  the  judgment  for  an  attorney's  fee. 

It  was  originally  supposed  that  the  addition  of  these  conditions 
made  the  instrument  lose  its  character  of  negotiability  and  become  nothing 
more  than  a  contract,  but  it  is  now  well  settled  in  most  states  that  such  notes 
are  negotiable,  and  they  are  recognized  as  such  by  the  N.  I.  L.  If,  however, 
the  authorization  be  to  bring  suit  before  maturity,  the  note  is  made  non- 
negotiable  because  the  time  of  payment  is  then  made  uncertain. 

The  advantage  of  such  notes  is  that  it  is  unnecessary  to  sue  upon  them  in 
the  ordinary  way,  in  order  to  secure  a  judgment.     No  summons  is  necessary, 

*  A  "power  of  attorney"  is  a  legal  instrument  empowering  the  person 
named  in  it  to  act  as  the  attorney  of  the  person  signing  it,  in  certain  specified 
matters  or  in  all  matters  of  a  kind  indicated.  In  this  case,  the  holder  of  the 
"power  of  attorney"  is  given  authority  to  go  into  court  as  a  lawyer  for  the 
debtor  and  admit  the  claim,  or  "confess  judgment"  for  him. 


124 


NOTES 


and  while  an  ordinary  suit  upon  a  note  requires  considerable  time  between 
its  C9niniencement  and  the  judgment,  the  entire  proceedings  of  taking  judg- 
ment on  a  judgment  note  may  take  only  a  fraction  of  a  day. 

174.  Collateral  Note.  Notes  secured  by  the  deposit  of 
securities,  such  as  stocks,  bonds,  or  mortgages,  which  are 
described  in  the  note  itself,  are  called  collateral  notes.  It  fre- 
quently happens  that  a  banker  lending  money  on  a  note  will 
require  such  a  pledge  for  its  payment.  Read  the  note  carefully. 
Observe  that  it  contains  all  that  any  note  contains,  and  in  addi- 
tion contains  stipulations  as  to  the  confession  of  judgment,  and 
the  sale  of  the  collaterals.  If  the  amount  received  from  the 
sale  is  more  than  enough  to  satisfy  the  debt  and  the  cost  of  the 
judgment,  the  excess  should  be  turned  over  to  the  debtor.  The 
negotiability  of  such  notes  has  not  been  very  generally  recognized 
until  the  adoption  of  the  N.  I.  L.,  which  recognizes  them  as 
negotiable  instruments. 

Collateral  Note 


•t        /9l^Jtf..i^-^z^^^^^^,  JrZ?^. . 

with  tDtcnst  at  the  rftt«  of_.^._per  cent,  per  annum,  after  due,  having  deposited  with  the  legal  bolder  henof  aa  coUatenl 

and  /ty^hoeby  give  th«  said  legAl  bolder,  hit,  b«r  or  th«ir  uatgn  or  usiffiu,  authority  to  sell  the  same,  or  any  part  thereof, 
on  the  maturity  of  thia  Note,  or  at  any  time  thereafter,  or  before.  In  the  event  of  said  •e<:unty  depreciating  in  value,  at 
public  or  private  sale,  without  advertising  the  same,  or  demanding  payni«it,  or  giving  notice,  and  to  apply  so  much  of  the 
proceeds  thereof  to  the  paynent  of  this  Note,  as  may  be  necessary  to  pay  the  same,  with  all  interest  due  thereon,  and  also 
to  the  payment  of  all  expenses  attending  the  sale  of  th^^id  collaterals,  and  in  case  the  proceeds  of  the  sale  of  the  same 
■hall  not  eover  the  principal,  interest  and  expense^ .^promise  to  pay  the  deficiency  forthwith  after  such  aaJe,  with  i&- 
t«rett  at^^^per  cenL  per  annum.  And  it  is  hereby  agreed  and  understood  that  if  recourse  is  had  to  said  collateral,  any 
money  refllaed  on  sale  thereof  in  excess  of  the  amount  due  upon  thii  Note  ahaU  be  applicable  to  the  payment  of  any  other 
note  or  elafan  which  the  aaid  tegal  bolder  may  have  affainst^^^^^/-.^- — .and  in  case  of  any  exchange  of,  or  addition  to  Hbft, 
eollateral  above  named,  the  provisions  of  this  Note  abaU  extend  to  neb  new  or  additional  coUateraL 


The  above  is  called  a  *'short  form"  of  collateral  note.      Many  collateral 
notes  are  much  longer,  containing  more  provisions,  all  stated  at  greater  length. 


NOTES  125 

REVIEW    QUESTIONS 

1.  Johnson  induced  Ebert,  a  German  unable  to  read  and  write  English, 
to  sign  an  instrument  which  was  in  form  a  promissory  note,  representing 
to  Ebert  that  it  was  a  contract  appointing  him  agent  to  ^ell  patented  farm 
machinery.  Johnson  completed  the  note  and  transferred  it  to  Walker,  who 
paid  value  and  knew  nothing  of  the  transaction.  Walker  sues  Ebert  on  the 
note.     Can  he  recover?     Why? 

2.  Who  is  liable  on  the  following  promissory  note?  In  what  manner? 
Why? 


.JAQOM..  RiPON,  m^.,..¥.^^l:A^.IPA9: 

^:C?::^I^:C:f.^l'l^i/-^'?^^r^^?rr^rrAFTER  date. .{ ..promise  to  pay 

^^^^--^-^.^----Pwfwa^^^  OR  ORDER, 

Four  hundred  and  ""/ioo^-''"^-''^-'''^--''"^---'^---''^''^-'-'^^^ 

WITH  INTEREST  AT  THE  RATE  OF.y./O.PfL?/!:^!*.^- 

J.  C.  Sherwood, 
Wm.  C.  Sherwood. 


3.     Is  the  following  a  negotiable  promissory  note?     Why: 


$1600.00  Chicago,  III.,  Nov.  4,  1914. 

When  sixty  days  after  this  date  have  elapsed,  I,  the  under- 
signed, William  Day,  agree  and  promise  that  I  will  upon  the 
demand  of  Ernest  Young,  pay  to  him,  the  said  Ernest  Young, 
the  sum  of  Sixteen  Hundred  Dollars,  in  lawful  coin  of  the  realm. 

William  Day. 


4.  At  the  request  of  Hines,  Smith  signed  a  note  with  Hines  for  $300, 
in  favor  of  Carter,  without  receiving  anything  for  so  doing,  in  order  to  aid 
Hines  in  borrowing  the  money.  Hines  signed  the  note  first,  Smith  placing 
his  name  just  below  that  of  Hines.  If  Smith  is  forced  to  pay,  can  he  recover 
from  Hines?  Why?  If  Hines  pays,  can  he  recover  from  Smith?  Why? 
From  whom  may  Carter  collect?  If  Carter  endorses  to  Roscoe,  from  whom 
may  Roscoe  collect? 


CHAPTER  XVII 


HOLDER  IN  DUE   COURSE 


(1 
2 
I.    Conditions<3 
Necessary 

u 


II.  Rights 


Transfer  for  Value 

Transfer  to  an  Innocent  Holder 

Transfer  in  the  Usual  Course 

of  Business 
Transfer  before  Maturity 


1 .  Subject  i 
to  De- 
fenses of 


Incapacity  of  Parties 
Void  Instruments 
Alteration  or  Forgery 


Not  Subject 
to  Defenses 
of 


a .  Fraud 

b.  Lack  or  Failure 

of  Consideration 

c.  Illegality 

d.  Payment  to  Prior 

Party 

e.  Set-offs 


CONDITIONS  OF  TRANSFER 

175.  Required  Conditions.  To  be  fully  negotiable,  a  paper 
must  be  transferred,  (1)  for  value;  (2)  to  an  innocent  holder; 
(3)  in  the  usual  course  of  business;  and  (4)  before  maturity. 
Unless  all  of  these  conditions  attend  the  transfer  of  a  negotiable 
instrument,  the  new  holder  takes  only  the  rights  which  he  would 
have  taken  had  the  document  been  a  mere  contract.  If  these 
four  conditions  are  all  complied  with,  the  new  holder  is  called, 
by  the  N.  I.  L.,  a  holder  in  due  course. 

176.  Transfer  for  Value.  No  one  can  become  a  holder  in 
due  course  unless  he  has  paid  value  for  the  instrument  which  is 
transferred  to  him.  The  consideration,  or  value,  which  he  must 
pay  need  not  be  money,  but  must  be  something  which  the  law 
treats  as  having  value.  It  may  be  cash,  goods  given,  liabilities 
incurred,  or  rights  surrendered.  A  finder  of  lost  paper  is  not 
a  holder  in  due  course  and  cannot  enforce  it  against  the  defenses 

126 


HOLDER   IN    DUE   COURSE  127 

which  might  have  been  urged  against  a  prior  holder.     The  same 
thing  is  true  of  one  who  receives  such  paper  as  a  gift. 

Prior  to  the  adoption  of  the  N.  I.  L.,  there  was  much  differ- 
ence of  opinion  as  to  whether  taking  a  note  in  payment  of,  or  on 
account  of,  a  pre-existing  debt,  constituted  the  giving  of  value. 
Section  25  of  the  N.  I.  L.  states  the  rule  as  follows:  "Value  is 
any  consideration  sufficient  to  support  a  simple  contract.  An 
antecedent  or  pre-existing  debt  constitutes  value,  and  is  deemed 
such  whether  the  instrument  is  payable  on  demand  or  at  a  future 
time." 

EXAMPLES 

1.  Parsont,  induced  by  Brown's  fraudulent  misrepresentations,  issued  a 
check  to  Brown  as  payee.  Brown  indorsed  it  to  Rosenthal  as  a  loan.  When 
Rosenthal  sued  Parsont  the  defense  was  made  that  the  note  had  been  induced 
by  fraud  and  that  Rosenthal  occupied  the  same  position  as  Brown,  the  payee. 
The  court  refused  to  allow  recovery,  stating  that  Rosenthal  had  not  paid 
value,  and  so  was  subject  to  the  same  defenses  as  Brown  would  have  been. 
Rosenthal  vs.  Parsont,  110  N.  Y,  Supp.  223. 

2.  A  bank  canceled  a  certificate  of  deposit  and  credited  the  amount  to 
the  account  of  the  depositor.  The  question  later  arose  as  to  whether  the  bank 
was  holder  in  due  course,  and  the  court  declared  that  this  transaction  did 
not  constitute  the  giving  of  value,  being  a  mere  readjustment  of  the  account 
of  the  depositor.    Commercial  National  Bank  vs.  State  Bank,  132  Iowa  706. 

177.  Transfer  to  an  Innocent  Holder.  T6  be  a  holder  in 
due  course,  one  must  not  only  have  paid  value,  but  he  must 
have  received  the  paper  without  knowledge,  or  notice,  of  any 
defects  in  the  seller's  title,  or  right  to  enforce  it.  If  he  accepts 
the  paper,  paying  value  for  it  and  yet  knowing  that  the  seller's 
title  is  defective,  or  that  there  is  a  valid  defense  to  the  instrument, 
he  is  not  an  innocent  holder;  he  takes  only  the  seller's  title,  and 
no  better. 

Nor  can  a  buyer  of  paper  deliberately  close  his  ear  to  any 
suggestions  of  fraud  or  defects  in  the  seller's  title,  for  if  he  receives 
any  suggestions  or  if  the  circumstances  are  such  as  would  arouse 
the  suspicions  of  an  ordinarily  prudent  man,  he  is  charged  with 
the  duty  of  investigating  before  buying. 

EXAMPLES 

1.  A  note  was  drawn  by  A,  payable  to  himself,  and  by  him  indorsed  and 
given  to  B  to  sell  for  cash  and  to  return  the  proceeds  to  A,  is  invalid  in  the 
hands  of  C,  who  knowing  the  facts  and  conditions  of  B's  possession  of  the 


128  HOLDER   IN    DUE   COURSE 

note,   took    the  note  from   B  in  satisfaction  of  a  debt  due  from  B  to  C. 
Bruggestadt  vs.  Ludwig,  184  111.  24. 

2.  A  gave  to  B  a  demand  note  payable  to  B  or  order  with  the  understand- 
ing that  it  should  not  be  negotiated.  B,  however,  indorsed  the  note  for  value 
to  C.  Afterwards  A  paid  B  the  amount  of  the  note,  supposing  that  he  had 
retained  the  note.  Later  C  sued  A,  and  A  was  compelled  to  pay  him  because 
he  was  a  holder  in  due  course  and  had  known  nothing  of  A's  payment  to  B 
Nash  vs.  DeFreville,  2  Q.  B.  (Eng.  1900)  72. 

178.  Transfer  in  the  Usual  Course  of  Business.  A  third 
condition  is  that  the  holder  must  acquire  the  paper  in  the  usual 
course  of  business.  By  this  is  meant  that  it  must  come  as  a 
regular  transfer  according  to  the  custom  of  commercial  trans- 
actions. Thus  a  receiver  or  assignee  appointed  by  a  court  to 
take  charge  of  an  insolvent  person's  business,  who  comes  into 
possession  of  a  bill  or  note,  by  virtue  of  his  appointment,  does  not 
get  it  in  the  regular  course  of  business,  nor  do  those  who  acquire 
title  through  him  get  it  in  the  usual  course  of  business. 

EXAMPLE 

A  trustee  in  bankruptcy  found  a  note  among  the  bankrupt's  assets.  This 
he  sold  to  a  third  party,  who  claimed  that  although  the  note  could  not  have 
been  enforced  by  the  bankrupt,  the  transfer  to  him  had  made  him  a  holder  in 
,due  course  and  that  he  took  title  free  from  defects.  He  was  denied  recovery, 
however,  as  not  having  received  the  paper  in  the  usual  course  of  business. 
Conley  vs.  Nelin,  128  S.  W.  (Tex.)  424. 

One  who  takes  a  note  or  bill  as  collateral  security,  that  is, 
to  secure  the  performance  of  some  other  obligation,  is  considered 
under  the  N.  I.  L.,  and  by  a  majority  of  states  that  have  not 
adopted  the  uniform  statute,  to  have  taken  it  in  the  usual 
course  of  business.  One  who  has  taken  paper  as  collateral, 
however,  can  recover  upon  it  only  to  the  amount  of  the  loss 
which  he  suffers  on  the  original  debt  which  it  is  taken  to  secure. 

179.  Transfer  before  Maturity.  He  who  takes  paper  after 
maturity,  simply  takes  the  rights  of  the  prior  holder.  If  the 
prior  holder's  right  and  title  are  good,  so  will  his  be,  but  if  there 
are  any  defenses  against  his  transferrer's  right  and  title,  they 
can  also  be  raised  against  him.  Thus  if  a  thief  steals  a  note 
after  maturity  and  sells  it  for  value,  the  taker  will  acquire  no 
title  whatever,  as  the  thief  had  none  to  convey.  Or,  if  the 
maker  of  a  note  pays  it  at  maturity,  and  it  is  set  in  circulation 


HOLDER  IX   DUE   COURSE  129 

again,  accidentally,  without  the  fault  of  the  maker,  he  will  be 
able  to  resist  another  payment  of  the  same  obligation  even 
though  the  paper  has  passed  into  the  hands  of  an  innocent 
holder  for  value. 

EXAMPLE 

A  note  provided  that  any  delinquency  in  the  payment  of  interest 
"shall  cause  the  whole  note  to  become  due  and  collectible  immediately." 
The  note  was  for  five  years,  but  the  interest  was  not  paid  the  first  year,  and  the 
second  year  a  third  party  bought  it.  The  court  declared  that  he  could  not 
thereby  become  a  holder  in  due  course,  because  by  reason  of  the  additional 
provision  the  note  had  become  due  and  he  had  purchased  it  Jafter  maturity. 
Hodge  vs.  Wallace,  129  Wis.  84. 

180.  Holder  after  Holder  in  Due  Course.  Although  the 
paper,  while  in  the  hands  of  the  original  holder,  may  have  had 
many  defects  and  been  subject  to  many  defenses,  yet  when  it 
has  once  passed  through  the  hands  of  a  holder  in  due  course  it  is 
freed  of  these  imperfections.  After  such  a  holder  in  due  course 
has  possessed  it,  any  party  claiming  under  him  takes  the  rights, 
not  of  the  original  holder,  but  of  the  first  holder  in  due  course. 
Consequently,  a  holder  subsequent  to  a  holder  in  due  course 
may  take  paper  with  knowledge  of  defenses  which  might  have 
been  urged  against  an  original  party  and  yet  not  take  his  rights 
subject  to  such  defenses.  If,  however,  such  a  subsequent  holder 
had  been  a  party  to  a  fraud  or  illegal  transaction  whereby  the 
note  was  originally  secured  he  could  not  escape  on  the  ground 
of  the  intervention  of  a  holder  in  due  course. 

EXAMPLES 

1.  B  buys  a  horse,  giving  a  note  in  payment,  and  finds  that  fraud  was 
practised  on  him  in  the  sale,  so  that  had  he  paid  cash  he  could  have  rescinded 
the  purchase  and  demanded  the  return  of  his  money.  The  note,  however,  has 
passed  from  the  fraudulent  seller  of  the  horse  to  C,  a  holder  in  due  course. 
A,  who  knows  of  the  original  fraud,  but  was  not  a  party  to  it,  buys  the  note  in 
due  course  from  C.  By  so  doing,  A  acquires  the  title  which  C  had  as  a  holder 
in  due  course,  although  he  could  not  himself  have  purchased  the  note  from 
the  original  seller  so  as  to  have  become  a  holder  in  due  course.  The  reason 
for  this  exception  to  the  rule  that  the  holder  should  be  innocent  is  that  C's 
rights  as  an  innocent  holder  to  negotiate  the  instrument  must  be  fully 
protected. 

2.  The  payee  of  a  note,  whose  title  was  defective,  sold  it  to  a  holder  in 
due  course  and  then  repurchased  it,  claiming  to  be  entitled  to  take  the  note 
free  from  defects  because  of  the  intervention  of  a  holder  in  due  course.     This 


130  HOLDER   IN    DUE   COURSE 

he  could  not  do,  because  his  title  is  determined  as  of  the  time  when  he  first 
became  a  party  to  the  note.     Andrews  vs.  Robertson,  111.  Wis.  334. 

181.  When  Paper  Matures.  The  exact  date  of  maturity  is 
always  an  important  fact,  and  one  about  which  there  should  be 
no  opportunity  for  dispute,  for  upon  this  date  the  rights  of  a 
subsequent  holder  frequently  depend.  When  the  time  of  a  bill 
or  note  is  stated  in  days,  the  actual  number  of  days  are  counted, 
excluding  the  day  of  issue ;  when  it  is  stated  in  months,  calendar 
months  are  understood  as  the  measure  of  maturity.  The  maker 
has  the  whole  of  the  business  day  on  which  the  paper  falls  due  to 
make  payment.  By  the  N.  I.  L.,  Section  85,  the  time  of  pay- 
ment, or  maturity,  is  further  specified  as  follows : 

"When  the  day  of  maturity  falls  upon  Sunday,  or  a  holiday,  the  instrument 
is  payable  on  the  next  succeeding  business  day.     Instruments  falling  due  on 
Saturday  are  to  be  presented  for  payment  on  the  next  succeeding  business  day,  1 
except  that  instruments  payable  on  demand  may,  at  the  option  of  the  holder,    ' 
be  presented  for  payment  before  twelve  o'clock  noon  on  Saturday  when  that 
entire  day  is  not  a  holiday." 

182.  Consideration.  So  long  as  the  immediate  parties  to 
negotiable  paper  are  the  only  ones  interested  in  it,  there  must  be 
consideration,  the  same  as  in  any  contract.  While  the  existence 
of  the  paper,  drawn  in  negotiable  form,  presumes  that  a  con- 
sideration was  given  for  it,  this  presumption  may  be  defeated  by 
proof  to  the  contrary  between  the  maker  or  drawer,  and  the  I 
payee. 

If  the  paper  has  been  transferred  to  a  holder  in  due  course, 
the  absence  or  failure  of  consideration  will  not  prevent  him  from  I 
recovering  upon  it  in  accordance  with  its  terms.     A  common  I 
practice  is  to  insert  the  words  "value  received,"  in  a  bill  or  note,  "! 
although  this  is  not  required  by  the  N.  I.  L.,  or  by  a  majority 
of  the  states. 

The  N.  I.  L.,  Section  25,  states  the  law  regarding  considera- 
tion, as  follows:. 

"Absence  or  failure  of  consideration  is  a  matter  of  defense  as  against  any 
person  not  a  holder  in  due  course." 

183.  Defenses.  The  defenses  which  may  be  urged  against 
negotiable  paper  are  of  two  kinds:  (1)  Real,  or  absolute, 
defenses;  and  (2),  Equities,  or  personal  defenses. 


HOLDER   IN    DUE   COURSE  131 

184.  Real  Defenses  are  those  which  attach  to  the  instru- 
ment itself,  and  which  are  good  against  all  persons,  regardless 
of  whether  or  not  they  are  holders  in  due  course.  Such  defenses 
exist  in  case  th'e  note  or  bill  is  defective  because  of  (1),  inca- 
pacity of  the  parties;  (2)  illegality  by  statute;  and  (3)  alter- 
ation or  forgery  of  the  instrument. 

Incapacity  of  a  party  renders  him  incapable  of  making  an 
ordinary  contract  which  can  be  enforced  against  him^  and  the 
same  rule  applies  to  negotiable  paper.  Such  a  party  may 
indorse  a  note  or  bill  so  as  to  transfer  it,  but  he  does  not  thereby 
become  liable  on  any  of  the  special  contracts  which  the  Law 
Merchant  implies.  He  cannot  be  sued  as  drawer,  maker,  or 
indorser. 

Void  instruments  are  not  enforceable,  even  by  a  holder  in 
due  course.  For  instance,  a  note  bearing  a  higher  rate  of 
interest  than  is  allowed  by  law  cannot  be  enforced  by  any  party, 
in  states  where  the  effect  of  usury  is  to  make  the  note  void.  In 
some  states  contracts  made  on  Sunday  are  void,  and  where  this 
is  true  a  note  made  on  Sunday  would  be  void  even  in  the  hands  of 
a  holder  in  due  course. 

Alteration  of  an  instrument  as  contrasted  to  the  forgery  of 
a  signature  consists  in  the  changing  of  some  material  term 
without  the  consent  of  prior  parties.  Thus  it  not  infrequently 
happens  that  the  amount,  date  of  payment  or  rate  of  interest  is 
fraudulently  altered.  At  common  law  a  material  alteration 
which  changed  the  nature  of  the  original  obligation  became  an 
absolute  defense  to  any  action  on  the  altered  instrument  no 
matter  who  brought  the  action.  This  rule  is  still  in  force  in 
states  which  have  not  adopted  the  N.  I.  L.  In  other  states, 
however,  the  N.  I.  L.  in  Section  124  provides  that  such  an 
instrument  may  be  enforced  by  a  holder  in  due  course  according 
to  its  original  form  before  alteration. 

The  only  instance  in  which  the  obHgation  of  a  prior  party  may  be  changed 
by  alteration  without  his  consent  is  where  the  active  negligence  of  the  party 
has  contributed  to  the  alteration.  Courts  are  not  agreed  on  what  this  negli- 
gence must  consist  in.  It  is  good  business  practice,  however,  never  to  leave 
any  blank  spaces  in  an  instrument. 

If  the  signature  of  a  party  is  a  forgery  such  party  is  not  liable  thereon 
whether  he  be  a  maker,  payee,  drawer,  acceptor  or  indorser.  This  is  because 
no  one  can  be  made  liable  for  an  obligation  which  he  has  never  assumed. 


132  HOLDER  IN  DUE  COURSE 

An  alteration  may  be  ratified  by  the  party  injured,  by  his 
agreement  to  pay  the  bill  or  note  in  accordance  with  its  terms. 
This  ratification  may  be  made  by  express  promise,  whether 
written  cr  oral,  and  may  even  be  implied  when  another  has,  with 
reasonable  cause,  relied  on  the  apparent  ratification,  to  his  injury. 

185.  Personal  Defenses  are  those  which  can  be  urged 
against  those  directly  responsible  for  the  injuries  claimed,  and 
others  whose  title  is  no  better,  but  which  cannot  be  urged  against 
a  holder  in  due  course.  Such  defenses  are:  (1)  Fraud  in  the 
transaction;  (2)  lack,  or  failure,  of  consideration;  (3)  illegality 
which  does  not  render  the  instrument  void;  (4)  payment,  or 
cancellation  before  maturity,  and  (5)  set-offs  as  against  a  prior 
party. 

Fraud  in  the  transaction  in  which  a  paper  was  issued,  if  the 
paper  has  been  delivered,  is  a  defense  which  cannot  be  urged 
against  a  holder  in  due  course.  Thus,  if  a  person  is  induced  to 
give  his  note  for  a  specified  amount  in  payment  for  a  horse  which 
he  later  discovers  is  not  as  represented,  he  may  have  a  defense 
against  the  person  practicing  the  fraud  and  others  who  have  come 
into  possession  of  the  instrument  with  no  better  title,  but  not 
against  a  holder  in  due  course. 

If,  however,  the  instrument  was  never  delivered  as  a  nego- 
tiable bill  or  note,  but  by  fraud  was  later  made  into  one,  this 
constitutes  a  defense  on  the  part  of  the  supposed  maker  against 
any  person.  Such  a  case  may  occur  when  one  who  is  blind  or 
infirm  signs  a  paper  by  mistake,  supposing  it  to  be  an  ordinary 
contract,  whereas  it  proves  to  be  a  negotiable  instrument;  or 
when  one  signs  his  name  to  a  blank  paper  which  is  later  filled  in 
without  authority.  In  neither  instance  is  the  instrument 
actually  delivered  as  a  bill  or  note,  and  the  fraud  may  therefore 
be  a  defense  against  any  holder. 

Lack,  and  failure,  of  consideration  are  matters  of  personal 
defense  which  can  be  urged  by  way  of  set-off  or  counterclaim, 
against  all  persons  not  holders  in  due  course.  If  as  between  the 
original  parties  the  instrument  was  executed  as  a  gift,  it  cannot 
be  enforced  by  the  party  to  whom  it  was  given,  because  of  lack  of 
consideration;  but  it  can  be  enforced  by  a  holder  in  due  course. 
Conversely,  if  a  paper  was  given  for  an  apparent  consideration. 


HOLDER   IN    DUE   COURSE  133 

as  for  services  to  be  performed,  which  consideration  subsequently 
fails  (as  when  the  party  agreeing  to  perform  the  services  refuses 
to  do  so) ,  defense  may  be  made  against  the  original  party,  or  any 
person  claiming  merely  his  rights,  to  the  amount  to  which  the 
consideration  has  failed;  but  this  defense  cannot  be  urged 
against  a  holder  in  due  course. 

Illegality,  when  not  such  as  is  declared  by  statute  to  make  an 
instrument  completely  void,  can  be  urged  only  against  the 
immediate  parties,  and  not  against  holders  in  due  course.  Thus, 
when  a  note  is  given  as  part  of  an  agreement  in  restraint  of  trade, 
or  for  a  gambling  debt,  it  is  not  collectible  as  between  the  imme- 
diate parties,  but  can  be  enforced  by  a  holder  in  due  course. 

Payment  to  prior  party.  Payment  before  maturit^^  discharges 
the  maker's  obligation  towards  the  party  paid,  but  if  the  nego- 
tiable instrument  is  not  surrendered  to  the  maker  or  drawer  and 
destroyed  it  may  still  pass  into  the  hands  of  a  holder  in  due 
course  at  any  time  before  maturity,  and  if  it  does  such  a  holder 
can  compel  payment  again. 

The  careful  business  man,  paying  his  obligations  on  bills  and  notes, 
requires  the  party  whom  he  pays  to  surrender  the  negotiable  instrument 
when  payment  is  made,  whether  it  be  before  or  after  maturity. 

186.  Set-offs  and  counterclaims  have  been  fully  treated 
under  the  subject  of  contracts.  Even  though  the  maker  of  a 
negotiable  instrument  may  have  such  a  right  against  the  first 
holder,  this  right  is  not  effective  against  a  subsequent  holder  if 
such  subsequent  holder  be  a  holder  in  due  course. 

187.  Recapitulation.  Negotiable  paper,  being  a  substitute 
for  money,  is  accorded  the  fullest  measure  of  protection  pos- 
sible by  law,  so  that  one  who  takes  it  as  a  holder  in  due  course 
may  feel  reasonably  safe  in  accepting  it.  If  the  paper  is  made 
out  in  proper  form,  and  is  not  yet  due,  the  only  conditions  which  a 
buyer  of  the  paper  need  inquire  into  are  the  credit  of  the  maker 
and  the  genuineness  of  his  signature. 

When  the  instrument  has  passed  into  the  hands  of  a  holder  in 
due  course  the  maker  loses  practically  all  of  his  possible  defenses. 
Often  it  seems  a  hardship  thus  to  restrict  an  original  party  in  his 
defenses,  but  as  between  two  parties,  the  more  innocent  should 
be  protected,  and  he  who  has  made  possible  the  existence  of  the 


134  HOLDER  IN   DUE  COURSE 

wrong  should  bear  the  consequences.  If  it  were  otherwise, 
negotiable  paper  would  have  little  value  as  an  aid  to  business, 
and  the  exchange  of  goods  by  means  of  such  instruments  of 
credit  would  be  very  limited. 

REVIEW    QUESTIONS 

1.  Davies  made  a  note  payable  to  Sandal,  or  order,  due  on  November  13. 
The  note  was  not  paid  at  maturity.  Some  weeks  later  Davies  paid  the 
amount  to  Sandal  but  did  not  receive  the  note  from  him.  Sandal  then  trans- 
ferred the  note  to  Brown,  who  paid  value  and  had  no  notice  of  the  maker's 
payment.     What  are  Brown's  rights?     Why?     Davies  rights?     Why? 

2.  Clark,  a  person  to  whom  a  note  had  been  indorsed,  and  who  received 
the  note  in  good  faith  and  for  value,  sued  Johnson,  the  maker.  This  note  had 
been  made  payable  to  Bush,  but  was  not  completed  as  to  amount,  and  had  been 
snatched  away  from  Johnson  by  Bush,  without  any  intentional  delivery  on  the 
part  of  Johnson,  and  indorsed  by  Bush  to  Clark.  What  are  Clark's  rights? 
Why? 

3.  A  issues  to  B  a  check  for  $100,  payable  to  B  or  order,  and  drawn  upon 
the  Peoples'  National  Bank  of  Bloomington,  111.  B  indorses  the  check  to  C, 
who  pays  value,  and  who  then  raises  the  amount  from  $100  to  $1000,  and 
indorses  it  to  D,  who  is  a  holder  in  due  course.  D  takes  the  check  to  the  bank, 
and  receives  the  money.  What  are  the  rights  of  the  bank  against  A?  B? 
C?     D? 

4.  Ames  gave  Bates  his  promissory  note  for  $5000,  Bates  agreeing  that 
he  would  in  consideration  of  this  deliver  to  Ames  certain  bank  stock.  This  he 
failed  to  do,  but  transferred  the  note  to  Call,  a  holder  in  due  course.  Call 
presented  the  note  as  a  gift  to  Dale,  who  sued  Ames.  What  are  Dale's  and 
Ames'  rights? 

5.  A  stranger  asked  Jonas,  a  farmer,  with  whom  he  stopped  for  dinner, 
to  cash  a  note  for  $25.00,  due  in  ten  days,  payable  to  the  stranger,  and  signed 
by  Burnham,  a  neighboring  farmer.  Jonas  produced  a  hundred  dollar  bill, 
which  was  all  he  had,  whereupon  the  stranger  said,  "Give  me  that,  and  I'll 
just  change  these  figures  to  $100  in  this  note."  This  he  did  and  Jonas  gave 
him  the  hundred  dollars.  When  the  ten  days  had  elapsed  he  sued  Burnham 
on  the  note  for  $100.     What  are  his  rights? 

6.  Suppose  in  Example  5  that  Jonas  had  before  maturity  sold  and 
indorsed  the  note  to  Welcome,  a  holder  in  due  course.  Would  Welcome's 
rights  have  been  diflferent  from  those  of  Jonas?     Why? 


CHAPTER  XVIII 


TRANSFER 


n 


By  Delivery<2. 


When  Payable  to  Bearer 
When  Already  Indorsed  in 
Blank 


II 


a.  Written  on 

Instrument 

b.  Order  to  Pay 

1.  Requisites< 

Transferee 
c.  Order  to  Pay 

Entire  Sum 

d.  Accompanied  by 

y  Indorse-< 

Delivery 

ment  and 
Delivery 

a. 
b. 

In  Full 
In  Blank 

2.   Kinds' 

c. 
d. 

Restrictive 
Qualified 

e. 

Conditional 

f. 

Irregular 

I.  Conditional  Liability 


II.  Warranties-; 


'1.  Instrument  is  Genuine 

2.  Instrument  is  Valid 

3.  Prior  Parties  are  Competent 

4.  His  Own  Title  is  Good 


188.  Transfer  by  Delivery  without  Indorsement.  One  type 
of  negotiable  paper  only,  viz.,  that  payable  to  bearer,  may  be 
transferred  by  delivery  alone.  When  paper  is  payable  to 
bearer,  no  further  act  beyond  delivery  is  necessary  on  the  part 
of  the  transferrer  to  give  to  a  holder  full  rights  in  due  course. 
This  delivery  must  be  voluntary. 

Delivery  may  be  voluntary  or  involuntary.  When  the 
transfer  is  made  in  the  usual  course  of  business  with  the  intention 
to  transfer  title  to  the  instrument,  and  the  rights  thereby  rep- 

135 


136  TRANSFER 

resented,  the  delivery  is  voluntary  and  passes  the  full  rights 
representcxi  by  the  negotiable  paper.  When,  however,  the  paper 
is  transferred  by  theft  or  finding,  the  delivery  is  involuntary. 
The  thief  or  finder  cannot  enforce  the  rights  represented  by  the 
instrument,  but  an  innocent  purchaser  from  him  can. 

EXAMPLE 

Hays  brought  suit  on  a  note  payable  to  bearer,  of  which  Hathorn  was  the 
maker.  Hays  produced  the  note  in  court  and  proved  Hathorn's  signature. 
Hathorn  then  attempted  to  show  that  the  note  had  been  stolen  from  him 
although  he  did  not  claim  that  Hays  was  the  thief.  This  was  not  a  sufficient 
defense.     Hays  vs.  Hathorn,  74  N.  Y.  486. 

189.  Transfer  by  Indorsement  and  Delivery.  The  only 
manner  in  which  negotiable  paper,  other  than  that  payable  to 
bearer,  can  be  transferred  so  as  to  create  in  the  new  owner  the 
rights  of  a  holder  in  due  course,  is  by  indorsement.  Popularly 
speaking,  indorsement  consists  in  the  writing  by  the  payee,  or 
the  holder,  of  negotiable  paper,  of  his  name  on  the  back  of  the 
instrument,  and  the  delivery  of  the  paper  so  indorsed  to  a  new 
and  subsequent  holder.  But  an  indorsement  is  more  than  this, 
in  that  it  must  conform  to  four  requirements.  These  are  that 
it  must  be  (1)  in  writing,  by  the  payee,  on  the  instrument  itself; 
(2)  an  order,  express  or  implied,  to  pay  the  person  to  whom  the 
paper  is  transferred;  (3)  an  order  directing  payment  of  the 
whole  sum  due  on  the  face  of  the  paper;  and  (4)  accompanied 
by  delivery. 

An  indorsement  on  a  separate  paper  is  insufficient.  The 
indorsement  must  be  written,  though  this  includes  writing  with 
either  pencil  or  ink  and  also  stamping  or  printing  the  signature 
of  the  person  so  transferring  the  instrument,  who  is  called  the 
indorser.  There  must  be  further,  either  express  or  implied,  an 
order  to  prior  parties  to  pay  the  sum  promised  to  be  paid  on  the 
face  of  the  instrument  to  the  person  to  whom  the  instrument  is 
transferred,  who  is  called  the  indorsee.  In  accordance  with  this 
rule  it  is  the  law  in  most  states  that  words  similar  to  "I  assign 
the  within  note,"  or  "I  assign  all  my  right,  title  and  interest  in 
and  to  the  within  note,"  are  insufficient  to  constitute  the  new 
taker  a  holder  in  due  course.  An  assignment  is  merely  the  giving 
of  authority  to  the  assignee  to  collect  as  on  a  simple  contract; 
the  element  of  demand  upon  the  maker  to  pay  is  missing.     A 


TRANSFER  137 

few  states  by  recent  decisions  have  overlooked  this  distinction 
and  view  a  written  assignment  on  the  instrument  as  of  the  same 
force  and  effect  as  a  simple  indorsement.* 

The  law  in  regard  to  partial  indorsements,  as  it  has  always 
existed  in  the  Law  Merchant,  is  stated  in  Section  32  of  the 
N.  I.  L.,  as  follows: 

"The  indorsement  must  be  an  indorsement  of  the  entire  instrument. 
An  indorsement  which  purports  to  transfer  to  the  indorsee  a  part  only  of  the 
amount  payable,  does  not  operate  as  a  negotiation  of  the  instrument.  But 
when  the  instrument  has  been  paid  in  part,  it  may  be  indorsed  as  to  the 
residue." 

The  person  taking  an  instrument  which  has  been  indorsed 
in  part  only,  becomes  merely  the  partial  assignee  of  a  simple 
contract,  and  ,in  no  wise  a  holder  in  due  course. 

No  transfer  by  indorsement  is  completed  until  the  instrument 
has  been  delivered  voluntarily  to  the  new  holder. 

EXAMPLE 
A,  payee  of  a  note  signed  by  B,  wrote  upon  it,  "Pay  to  X,  (Signed)  A," 
and  placed  the  note  in  his  safe,  intending  to  deliver  it  in  the  morning.  X 
broke  open  the  safe  during  the  night  and  stole  the  note.  As  the  note  had  never 
been  delivered  to  him,  he  could  not  enforce  it,  but  if  he  in  turn  had  transferred 
it  to  a  holder  in  due  course,  the  latter  could  have  enforced  the  note.  Greeser 
vs.  Sugarman,  76  N.  Y.  Supp.  922. 

190.  Kinds  of  Indorsement.  While  every  indorsement,  to 
be  effective  to  negotiate  an  instrument,  must  include  the  four 
elements  just  enumerated,  endorsements  may  be  of  several  kinds. 
The  principal  kinds  of  indorsements  are  as  follows : 

1.  Indorsement  in  Full  (called  a  special  indorsement  by 
theN.  I.L.) 


2.     Indorsement  in  Blank. 


*  Wisconsin,  North  Carolina,  Minnesota. 


138  TRANSFER 

3.     Restrictive  Indorsement. 


[a^<^7^a/ciA^  l%yT^^      (rnlf-. 


4-     Qualified  Indorsement. 
5.     Conditional  Indorsement. 

191.  Effect  of  indorsement.  Before  discussing  in  detail 
the  various  kinds  of  indorsement,  the  attention  of  the  student 
is  directed  to  the  fact  that  whenever  any  of  these  indorsements 
is  properly  made  the  endorser  does  three  separate  and  distinct 
things : 

(1)  He  transfers  to  the  endorsee  the  right  to  collect  the 
paper  in  his  own  name. 

(2)  He  promises  (except  in  case  of  a  restricted  or  qualified 
indorsement)  to  pay  the  indorsee  if  the  party  primarily  respon- 


TRANSFER  139 

sible  fails  to  do  so  (provided  a  proper  attempt  has  been  made  to 
collect  from  the  maker,  and  prompt  notice  has  been  given  to  him, 
the  indorser,  of  the  maker's  failure  to  pay). 

(3)  He  warrants  that  the  instrument  is  genume;  that  he  has 
good  title;  that  the  note  is  not  void  because  of  illegality;  and 
that  no  prior  party  was  incompetent. 

If  the  party  primarily  responsible  fails  to  pay  the  instrument 
when  it  is  properly  presented  and  the  indorser  is  promptly 
notified  of  the  default,  or  if  any  of  the  indorser 's  warranties  fail, 
the  indorsee  may  sue  the  indorser, 

192.  An  indorsement  in  full  designates  the  person  to  whom 
the  indorser  desires  to  make  the  instrument  payable.  It  can  be 
paid  to  no  one  else,  and  can  be  further  negotiated  only  by  his 
indorsement. 

The  advantage  of  such  an  indorsement  is  that  a  finder  or 
thief  would  be  compelled  to  forge  the  indorsee's  name  in  order 
to  negotiate  the  instrument  further,  and  when  an  indorsee's 
name  is  thus  forged  the  prior  indorser  is  not  liable  on  his  implied 
contract.  The  words  "or  order"  are  not  necessary  to  an  indorse- 
ment in  full,  under  the  N.  I.  L.;  the  phrase,  "Pay  to  (indorsee's 
name),"  written  over  the  indorser 's  signature  is  sufficient. 
The  indorser  may  further  negotiate  the  instrument  by  indorse- 
ment in  the  same  manner  as  though  the  words,  "or  order"  were 
present,  the  reason  being  that  the  instrument,  having  originally 
been  negotiable  on  its  face,  will  be  presumed  to  continue  so  unless 
specifically  qualified  or  limited. 

EXAMPLE 

May  held  News'  negotiable  note.  He  sold  it  to  Ong.  In  transferring  it 
to  Ong  he  endorsed  it  as  follows:  Pay  J.  C.  Ong,  signed  L.  C.  May.  What 
kind  of  an  indorsement  was  this?    Can  Ong  in  turn  transfer  it  by  indorsement? 

193.  An  indorsement  in  blank  is  simply  the  signature  of  the 
indorser  written  upon  the  back  of  the  instrument.  It  is  so  called 
because  the  indorsement  proper  is  left  blank,  to  be  filled  in  by  any 
subsequent  holder.  Thus  if  E.  C.  Becker  is  the  payee  or  holder 
of  a  negotiable  instrument  he  may  indorse  it  by  writing  his  name 
on  the  back  and  delivering  it.  In  such  a  case  the  law  implies 
that  he  has  given  authority  to  any  subsequent  holder  to  write 
above  his  name  a  direction  to  the  maker  or  acceptor  to  pay. 


140  TRANSFER 

If  Arthur  Long  were  the  holder  he  would  be  authorized  to  write 
above  Becker's  signature  the  words,  "Pay  to  Arthur  Long,  or 
order,"  making  the  blank  indorsement  full. 

The  effect  of  indorsing  a  paper  in  blank  is  to  make  it  payable  to  bearer, 
because  any  holder  has  this  implied  authority  to  complete  the  indorsement. 
It  may,  as  long  as  the  indorsement  continues  blank,  pass  from  hand  to  hand 
without  further  indorsement.  Blank  indorsements  are  not  entirely  satis- 
factory from  the  view-point  of  the  cautious  business  man,  because  if  the 
instrument  is  stolen  or  lost,  the  paper,  having  the  effect  of  an  instrument 
payable  to  bearer,  may  be  readily  negotiated  and  pass  into  the  hands  of  a 
holder  in  due  course,  after  which  the  true  owner  will  be  without  redress. 

194.  Restrictive  indorsements  are  of  three  kinds.  A 
restrictive  indorsement  (Sec.  36,  N.  L  L.)  may  be  one  which 
either  (1)  prohibits  the  further  negotiation  of  the  instrument; 
or  (2)  constitutes  the  indorsee  the  agent  of  the  indorser  (as  for 
collection);  or  (3)  places  the  title  to  the  instrument  in  the  in- 
dorsee for  him  to  use  for  the  benefit  of  some  other  person.         ^ 

195.  A  Qualified  indorsement  is  a  form  of  indorsement  by 
which  the  indorser  limits  his  implied  contract  with  subsequent 
parties.  The  usual  form  is  to  write  such  a  phrase  as,  "Pay  to 
G.  W.  Burke,  or  order,  without  recourse  to  me.  Allen  Moore." 
It  is  sufficient  if  the  words,  "Without  recourse,"  alone  be  written 
above  the  signature  of  the  indorser.  In  this  manner  the  indorser 
escapes  a  portion  of  his  liability  as  an  indorser.  He  does  not 
escape  his  warranty,  however,  that  the  prior  signatures  are 
genuine,  that  the  note  is  not  invalid  for  illegality  or  incompe- 
tency of  the  parties,  and  that  he  has  a  good  title. 

196.  Conditional  indorsement.  When  a  condition  is  im- 
posed upon  an  instrument  in  connection  with  an  indorsement,  it 
is  said  to  be  indorsed  conditionally.  The  legal  effect  is  to  limit 
the  negotiable  character  of  the  paper  as  to  subsequent  parties, 
and  to  prevent  further  negotiation  by  them  until  the  terms  of 
the  condition  have  been  complied  with. 

The  party  required  to  pay  an  instrument  may  disregard  a 
condition  imposed  by  an  indorser,  but  the  party  receiving  the 
money  must  hold  it  subject  to  the  rights  of  the  party  who 
indorsed  conditionally.      (Sec.  69,  N.  I.  L.) 

197.  Exceptional  Cases.  In  connection  with  the  indorse- 
ment of  a  negotiable  instrument,  it  is  necessary  for  the  business 


TRANSFER  141 

man  handling  commercial  paper  to  understand  the  effect  of  three 
unusual  sets  of  circumstances: 

Blank  Indorsement  Followed  by  Full  Indorsement.  It  has 
been  stated  that  the  indorsement  of  an  instrument  in  blank  has 
the  effect  of  making  the  instrument  payable  to  bearer,  because 
any  holder  has  the  right  to  fill  in  the  blank.  (If,  instead  of  filling 
in  the  blank,  a  subsequent  holder  indorses  the  paper  in  full, 
the  instrument  can  then  be  transferred  to  another  only  by 
indorsement,  and  not  by  mere  delivery.) 

This  rule  is  adopted  in  Section  30  of  the  N.  I.  L.,  as  follows: 
"An  instrument  is  payable  to  bearer  when  the  only  or  last  indorse- 
ment is  an  indorsement  in  blank." 

Morris  signs  a  note  payable  to  bearer  and  delivers  it  to  Jones,  who  indorses 
it  "Pay  to  order  of  Higgins,"  and  delivers  it  to  Higgins,  from  whom  it  is  stolen. 
The  thief  forges  Higgins'  name  and  the  note  is  then  transferred  to  Smith, 
an  innocent  holder  in  due  course.  Smith  may  thereupon  collect  the  note 
from  Morris,  but  has  no  rights  against  Jones  or  Higgins. 

Full  Indorsement  of  a  Bearer  Note.  A  bearer  note  is  trans- 
ferable by  delivery,  and  it  does  not  lose  this  characteristic  if 
a  holder  indorses  it  in  full.  It  will  continue  to  be  transferable 
by  delivery,  and  will  be  valid  against  the  maker,  though  the 
indorser  in  full  is  liable  only  to  those  who  claim  rights  in  the 
instrument  through  and  under  his  indorsement. 

The  Indorsees  Contract.  It  has  already  been  noted  that 
every  indorser  by  his  indorsement  makes  certain  warranties 
and  that  he  contracts  with  all  subsequent  parties  that  he  will 
pay  the  instrument  indorsed  if  the  maker  does  not;  but  this 
engagement  upon  his  part  is  conditioned  upon  proper  present- 
ment for  payment  and  prompt  notification  to  him  of  non-payment. 
Each  indorser  may  look  to  all  prior  indorsers  for  satisfaction, 
in  case  of  loss  to  himself,  because  he  acquired  his  rights  from  or 
through  them. 

The  contract  of  warranty  applies  not  only  to  indorsers  but  to 
persons  who  transfer  a  bearer  instrument  by  delivery  without 
indorsement  for  value;  the  latter,  however,  cannot  be  held  for 
payment  if  the  maker  fails  to  pay. 

198.  Irregular  Indorsers.  An  irregular  indorser  is  one  who 
places  his  name  on  the  paper  without  being  a  party  to  the 
instrument  in  the  regular  chain  of  title,  or  without  receiving  any 


142  TRANSFER 

consideration  for  so  doing.  There  was  much  difference  of  opinion 
as  to  the  nature  of  his  Hability  before  the  N.  I.  L.,  and  each  state 
had  its  own  view.  The  N.  I.  L.,  Section  63,  declares  that  such  a 
person  is  to  be  deemed  an  indorser  as  to  all  subsequent  parties, 
and  assumes  the  liabilities  of  an  indorser. 

EXAMPLE 
On  the  following  instrument,  Mapes  is  deemed  an  indorser. 


JPOPM..  Chicago,  li.i..,.]:Joi-JjJP.i§, 

^:^f^T?^^^^^l?(^.^?J/?^^^:CT?^^AFTER  date. A.. promise  to  pay 
^.-^_-^,.--. — -"^--^WzZZiam  E.  Stone^^^--^^^ — .— ^^    ^^  order 

Six  Hundred  and  "y^oo"^-^-^-^---'--'--'--'----— — "-"^^  Dollars 

WITH.^.%-INTEREST. 

Edgar  Mapes.        (Signed)  Walter  A.  Call. 


REVIEW  QUESTIONS 

1.  Inspect  the  following  note: 

Chicago,  Jan.  18,  1916. 
Three  years  from  date  I  promise  to  pay  to  the  order  of 
John  Gordon,  Five  Hundred  Dollars,  with  interest  at  six  per 
cent  per  annum. 

(Signed) 

Richard  Meyer. 
This  note  was  indorsed: 

Pay  to  George  Wheeler  if  my  house  is  completed  before  the 
maturity  of  this  note. 

(Signed) 

John  Gordon. 

Suppose  that  at  the  maturity  of  this  note  it  is  presented  for  payment  to 
Meyer,  who  pays  Wheeler,  and  Gordon's  house  has  not  been  completed. 
What  are  Gordon's  rights,  if  any,  against  Meyer?  against  Wheeler?     Why? 

2.  Goss,  an  infant,  makes  a  note  for  $125,  payable  to  Baldwin,  or  order, 
which  Baldwin  indorses  by  a  full  indorsement  to  Castle,  who  indorses  without 
recourse  to  Dawson,  who  in  turn  indorses  it  in  blank  to  Edison.     The  note 


TRANSFER  143 

not  being  paid  at  maturity,  what  are  Edison's  rights,  if  any,  against  Goss? 
against  Baldwin?  against  Castle?  against  Dawson? 

3.  Inspect  the  following  draft: 

Chicago,  June  1,  1916. 
Two  months  after  date  pay  to  the  order  of  Call  the  sum  of 
Five  Hundred  Dollars,  and  charge  to  the  account  of 
To  Bates,  (Signed) 

Cleveland.  Ames. 

Call  indorses  this  draft  in  blank  and  loses  it.  It  is  found  by  Dale,  who  fills 
out  the  blank  indorsement  to  himself,  and  indorses  it  without  recourse  to 
Evans,  a  holder  in  due  course.  At  maturity  Bates  refuses  to  pay  it.  What 
are  Evans'  rights  against  Ames?  against  Bates?  against  Call?  against 
Dale? 

4.  Butler  by  fraud  secures  a  promissory  note  payable  to  his  order  from 
Warren.  Butler  indorses  it  without  recourse  to  Campbell,  a  holder  in  due 
course,  who  in  turn  indorses  it  in  blank  to  Dore,  who  knew  of  the  original 
fraud,  but  was  not  a  party  to  it.     What  are  Dore's  rights  against  Warren? 

5.  If  in  the  above  example  Warren  refuses  to  pay  the  note,  what  are 
Dore's  rights  against  Butler?  against  Campbell? 

6.  (a)  Write  a  note  embodying  the  following  conditions:  Maker  is 
yourself,  payee  is  Harvey  Rew,  amount  is  $50,  payable  sixty  days  from  date. 
(b)  Indorse  it  in  full  by  Rew  to  Herman  Anderson,  who  indorses  it;.to  George 
Caldwell  without  recourse,  who  restrictively  indorses  so  as  to  be  payable 
only  to  Samuel  Morgan. 


CHAPTER  XIX 


PRESENTMENT   FOR   ACCEPTANCE 


fl.    When 

Necessary 


1.  Instruments  payable  after  sight 

2.  Express  stipulation 

3.  Place   of  payment  not  drawee's 
home  or  business  address 


II.  Tests  of 

Sufficiency' 


1.  By  whom  and  to  whom  made 

2.  Place  of  presentment 

3.  Time  of  presentment 

4.  Manner  of  presentment 


III.   Proceedings fl.   Notice  to  prior  parties 
on  dishonor< 

[2.    Protest  of  foreign  drafts 


199.     When  Presentment  for  Acceptance  is  Necessary.     In 

the  chapter  entitled  "Drafts,"  the  rights  and  HabiHties  of  the 
three  parties  to  the  instrument  have  been  discussed. 

Accepted  Draft 


The  three  parties  in  the  above  draft  are  BHss,  the  drawer; 
Neagle,  the  payee;  and  Eagan,  the  drawee,  who  may  become  the 
acceptor.     By  drawing  the  instrument,  the  drawer,  Bhss,  agrees 

144 


PRESENTMENT   FOR  ACCEPTANCE  145 

that  he  will  pay  the  sum  of  $300  to  Neagle,*  or  any  indorsee  sub- 
sequent to  Neagle,  if  the  drawee  does  not  accept  it  if  properly 
presented. 

The  student  should  carefully  distinguish  between  presentment  for  pay- 
ment and  presentm'ent  for  acceptance.  Presentment  for  payment  is  necessary 
in  connection  with  all  negotiable  paper  when  it  is  desired  to  charge  those 
secondarily  liable.  Presentment  for  acceptance  is  a  procedure  relating  only  to 
time  drafts. 

The  drawer's  contract  is  a  conditional  one,  similar  to  that 
of  an  indorser.  The  payee  or  his  indorsee,  however,  may  lose  all 
rights  against  the  drawer  by  failure  to  present  the  draft  for 
acceptance. 

Presentation  for  acceptance  is  made  to  the  drawee,  and  is 
necessary  only  in  three  instances.  These  are:  (1)  when  the 
draft  is  payable  after  sight,  or  when  from  the  nature  of  the 
promise  in  the  draft,  presentation  is  necessary  to  fix  the  date  of 
maturity  of  the  instrument;  (2)  when  it  is  expressly  stipulated 
in  the  draft  that  it  shall  be  presented  for  acceptance;  or  (3)  when 
the  draft  is  drawn  payable  elsewhere  than  at  the  residence  or 
place  of  business  of  the  drawee.  In  all  other  cases  no  presenta- 
tion for  acceptance  is  necessary,  and  the  drawer  may  be  made 
liable  if  the  drawee  refuses  to  pay  on  the  presentation  of  the 
draft  for  payment.     (N.  I.  L.,  Sec.  143.) 

200.  Why  Presentment  is  Necessary.  The  drawee  of 
negotiable  paper  is  usually  under  no  obligation  to  accept  unless 
he  has  agreed  to  do  so,  and  the  holder  cannot  sue  him  even  though 
he  have  funds  belonging  to  the  drawer  which  he  refuses  to  pay, 
for  there  is  no  contract  between  the  payee,  or  holder,  and  the 
drawee.  Such  suit  could  be  brought  by  the  drawer  only.  If  the 
drawee  refuses  to  accept  and  thereby  promise  to  pay,  the  holder 
may  ordinarily  require  payment  from  the  drawer.  But  if  the 
draft  is  one  requiring  presentment  for  acceptance,  and  such 
presentment  has  not  been  properly  made,  the  holder  has  failed 
to  perfect  his  rights  against  the  drawer  and  has  acquired  none 
against  the  drawee. 


*  As  between  drawer  and  payee,  if  lack  of  consideration  can  be  shown 
the  drawer  is  freed  from  liability.  This  would  be  the  case  if  in  the  above 
instance  the  draft  had  been  given  for  collection — Neagle  would  have  been 
merely  an  agent  for  Bliss. 


146  PRESENTMENT   FOR  ACCEPTANCE 

201.  By  and  to  Whom  a  Draft  Should  be  Presented.     The 

draft  should  be  presented  by  the  lawful  holder,  or  his  authorized 
agent,  to  the  drawee  or  his  authorized  agent.  The  party  in 
possession  of  the  draft  is  presumed  to  have  the  right  to  present  it, 
and  the  drawee  assumes  no  unusual  risk  when  he  accepts  a  gen- 
uine draft  on  presentment,  that  is,  he  is  not  required  to  investi- 
gate the  holder's  right  to  the  instrument.  If  the  draft  is  drawn 
on  a  firm,  presentment  to  any  partner  is  sufficient,  but  if  it  is 
drawn  on  two  drawees,  not  as  partners,  it  should  be  presented  to 
both,  and  if  the  acceptance  of  one  only  is  taken,  it  is  at  the  risk 
of  the  holder,  unless  the  one  accepting  has  authority  to  accept 
for  both.  If  the  drawee  cannot  be  found,  inquiry  should  be  made 
for  some  person  authorized  to  accept  for  him,  but  if  acceptance 
is  made  by  an  agent  of  the  drawee,  it  is  necessary  for  the  holder, 
before  he  can  collect,  from  the  drawee,  to  prove  that  the  agent 
was  authorized  to  accept.  If  the  drawee  is  dead,  the  draft 
should  be  protested  at  once  so  as  to  permit  charging  the  drawer. 

202.  Where  Presentment  Should  be  Made.  Presentment 
for  acceptance  should  be  made  either  at  the  drawee's  place  of 
business,  or  at  his  residence.  Even  when  a  draft  specifies  the 
place  of  payment,  it  should  be  presented  for  acceptance,  not  at 
that  place,  but  at  the  ofhce  or  home  of  the  drawee,  for  the  place 
of  payment  is  not  material  until  after  acceptance.  If  the  drawee 
has  moved,  diligent  inquiry  should  be  made  to  ascertain  his  new 
residence  or  place  of  business,  and  presentment  should  be  made 
there.  If  he  cannot  be  found,  the  draft  should  be  treated  as 
dishonored. 

203.  Time  Presentment  Should  be  Made.  Presentment 
for  acceptance  should  be  made  within  the  usual  business  hours, 
and  except  when  a  bank  is  the  drawee,  these  usually  extend  until 
bed-time.  It  does  not  matter  when  it  is  made,  provided  some 
authorized  person  is  seen  and  presented  with  the  instrument, 
though  if  the  hour  is  an  unreasonable  one,  and  no  answer  is 
received,  the  presentment  is  without  legal  force  and  effect. 

The  draft  must  be  presented  within  a  reasonable  time  after 
the  holder  has  received  it.  If  it  is  not  so  presented,  the  drawer 
will  be  discharged  of  all  liability,  even  though  he  may  have 
suffered  no  actual  damage  from  the  delay.     What  is  a  reasonable 


PRESENTMENT   FOR  ACCEPTANCE  147 

time,  differs  with  the  circumstances  of  different  cases.  In  general 
the  holder  must  act  as  any  ordinarily  prudent  business  man 
would  act.  When  he  receives  a  draft  he  must  either  indorse  it  to 
some  other  person,  and  so  keep  it  in  the  process  of  negotiation, 
or  he  must  present  it  for  acceptance.  The  safer  course  for  the 
business  man  to  adopt  is  to  present  promptly  all  drafts  in  which 
presentment  for  acceptance  is  required. 

If  the  holder  has  delayed  for  an  unreasonable  time,  the  drawer 
is  excused  from  all  further  liability,  unless  the  holder  can  show 
that  he  was  prevented  from  presenting  it  because  of  some  lawful 
excuse,  such  as  sickness,  inevitable  accident,  war,  pestilence,  or 
disease.  Such  excuses,  to  be  valid,  must  include  circumstances 
which  were  beyond  the  holder's  control,  and  which  he  could  not 
with  due  diligence  have  overcome. 

204.  How  a  Draft  Shoidd  be  Presented.  The  holder  should 
make  an  actual  exhibit  of  the  draft  to  the  drawee  or  his  agent, 
and  request  its  acceptance.  This  is  because  the  drawee's  accept- 
ance is  properly  written  across  the  face  of  the  draft,  and  unless 
actually  presented  this  cannot  be  done.  If,  however,  the  person 
making  presentment  should  describe  the  draft  with  sufficient 
accuracy  and  no  demand  should  be  made  for  its  actual  production 
the  exhibition  of  the  draft  itself  would  be  waived,  and  the 
presentment  would  be  sufficient  to  hold  the  drawer  liable  for  the 
refusal  to  accept. 

Upon  presentment  the  drawee  has  the  right  to  hold  the  draft 
for  twenty-four  hours,  in  order  to  give  him  time  to  investigate 
his  financial  affairs,  and  those  of  the  drawer,  before  deciding 
whether  he  will  accept  or  refuse  the  draft. 

205.  Result  of  Presentment  for  Acceptance.  The  result  of  a 
proper  and  sufficient  presentment  of  a  draft  for  acceptance  may 
be  either  (1)  an  acceptance  by  the  drawee;  or  (2)  a  refusal  to 
accept,  called  a  dishonor  of  the  instrument. 

If  the  drawee  accepts  in  legal  form,  the  elements  of  which 
are  discussed  in  the  following  paragraphs,  he  becomes  liable  to 
the  holder  and  all  subsequent  parties  on  a  new  contract,  and 
the  drawer  is  liable  contingently  in  the  event  that  the  acceptor 
fails  to  meet  his  obligations. 


148  PRESENTMENT   FOR  ACCEPTANCE 

If  the  drawee  dishonors  the  draft,  the  holder  may  at  once, 
by  appropriate  legal  proceedings,  called  protesting  the  instrument 
and  giving  notice  of  dishonor,  establish  his  right  to  collect  the 
amount  of  the  instrument  from  the  drawer. 

206.  Proceedings  Upon  Non-Acceptance.  If  instead  of 
accepting  the  draft  by  means  of  one  of  the  forms  of  general 
acceptance,  after  a  proper  presentation  of  the  instrument  has 
been  made  to  him,  the  drawee  refuses  it  or  neglects  to  accept  it, 
the  draft  is  said  to  be  dishonored,  and  the  holder  is  at  liberty  to 
hold  the  prior  parties  liable  to  pay  to  him  the  amount  of  the 
draft.  He  does  this  by  giving  immediate  notice  to  all  prior 
parties  (the  drawer,  payee,  and  previous  indorsers)  that  the 
draft  has  been  dishonored  by  the  drawee  and  that  they  will  be 
held  liable  to  pay  it.  The  holder  need  not  wait  for  the  maturity 
of  the  instrument,  but  may  at  once  collect  from  all  these  prior 
parties  who  were  conditionally  liable. 

If  the  draft  is  a.  foreign  bill  of  exchange  (See  Sec.  144)  it  should 
also  be  protested,  and  then  notices  should  be  sent.  (For  forms 
and  discussion  of  protest,  see  Sec.  219.) 

Unless  such  notices  of  dishonor  are  deposited  in  the  mail 
addressed  to  the  prior  parties  conditionally  liable,  or  are  left  at 
the  place  of  business  or  residence  of  the  prior  parties  on  the  day 
of  or  the  day  following  such  refusal  to  accept,  they  cannot  be  held 
liable  to  pay  the  instrument  to  the  holder.  Notice  to  all  prior 
parties  is  ordinarily  given  by  the  holder,  but  may  be  given  by  one 
prior  party  to  another. 

EXAMPLE 

^  If  Biiss  is  the  drawer;  Neagle,  the  payee  and  an  indorser;  Walker,  an 

indorser;  and  Selden,  the  holder;  and  the  draft  is  refused  acceptance  by  the 
drawee,  Eagan;  the  normal  method  would  be  for  Selden  to  give  notice  of 
dishonor  to  Walker,  Neagle,  and  Bliss.  It  might  be,  however,  that  he  knew 
Walker  to  be  reliable  and  so  notified  him  alone.  In  this  event  Neagle  and 
Bliss  would  be  discharged  from  liability  for  payment,  unless  Walker  in  order 
to  protect  himself  should  give  notice  to  them.  This  notice  would  be  sufficient 
to  them,  and  if  Walker  were  forced  to  pay  the' draft,  he  in  turn  could  collect 
from  Neagle,  and  Neagle  from  Bliss,  each  recovering  from  the  party,  or 
parties,  named  in  the  draft,  or  on  its  back,  prior  to  his  own  name. 

The  function  of  notice  of  dishonor  is  to  give  an  opportunity 
to  parties  who,  because  of  the  refusal  of  the  drawee  to  accept, 


PRESENTMENT   FOR  ACCEPTANCE  149 

are  charged  to  pay  the  draft,  to  protect  themselves  by  appro- 
priate action  against  either  the  drawee  or  parties  prior  to  them- 
selves. The  drawee,  payee,  and  indorsers  are  conditionally 
liable,  and  the  condition  on  which  their  liability  to  pay  the  draft 
depends  is  that  the  drawee  should  on  proper  presentment  refuse 
to  accept  it  and  that  they  should  be  given  sufficient  notice  of 
that  refusal. 

REVIEW  QUESTIONS 

1.  A  draft  payable  to  order  is  stolen  from  the  payee.  The  thief  forges 
the  payee's  indorsement,  and  transfers  the  draft  to  Holden,  a  holder  in  due 
course,  who  presents  it  to  the  drawee,  who  accepts  it.  Holden  then  transfers 
it  to  Rawson  who  is  also  a  holder  in  due  course.  At  maturity  the  acceptor 
refuses  to  pay  it.  What  are  Rawson's  rights?  against  the  acceptor?  the 
payee?    the  maker?    against  Holden? 

2.  Write  a  draft  in  which  you  are  the  maker;  David  Davis,  the  payee; 
Edgar  Evers,  the  drawee;  which  requests  the  drawee  to  pay  the  sum  of  $500 
thirty  days  after  sight.  » 

Write  the  drawee's  general  acceptance  on  the  draft;  also  ^  full  indorsement 
from  the  payee  to  Morris  Levy;  also  a  blank  indorsement  by  Morris  Levy 
to  Benjamin  White. 

3.     Inspect  the  following  draft: 


P.m-00.  New  Oni.Y.A^^,^lVt.J2,1916, 

7  100  ^OWi_/lS--;---~-^-^^--^^^prpj,jj  SIGHT,  PAY  TO 

.^f?r9.^.J^.r}¥Jl?ir.':r:rr:^:r^:r?::?.oR  order, 

^.^yy3.M}['}[^jysL'^Mty.9I'Alil2o^  and  charge  to 

THE    ACCOUNT    OF 

r     ry           m             m                     ChoHes  RobeHs. 
'Pq  L.  draves,  I  amp_a,_  r  la.  


On  September  25,  Jenkins  presented  this  to  Graves,  who  wrote  across 
the  face  the  words:  "Accepted,  Sept.  25,  1916,  to  pay  $700  in  cash  and  $50 
by  my  own  note,  (Signed)  L.  Graves."  Jenkins  then  indorsed  the  draft  to 
Wilfred  Munday.  Graves  failed  to  pay  Munday  $750.  What  rights  has 
Jenkins  against  Roberts?     Why? 

4.  Suppose  that  in  the  above  draft  Jenkins  had  gone  to  Graves'  house 
at  two  o'clock  in  the  morning  with  the  draft,  and  that  when  Graves  put  his 
head  out  of  an  upper  window  Jenkins  had  exhibited  the  draft  and  demanded 


150  PRESENTMENT   FOR  ACCEPTANCE 

its  acceptance,  saying  that  he  had  to  take  an  early  morning  train  for  Key 
West.  That  Graves  had  told  him  to  "go  home  where  you  belong,"  and  had 
closed  the  window.     What  rights  would  Jenkins  then  have  against  Roberts? 

5.     Inspect  the  following  draft: 

Kansas  City,  Mo.,  Jan.  22.  1916. 
Thirty  days  from  sight  pay  to  Louis  Weber,  or  order.  Five 
Thousand  Dollars,  and  charge  to  the  account  of 
To  Sam  Dawson,  Vroman  Main. 

St.  Joseph,  Mo. 

This  draft  is  indorsed  on  the  back  as  follows: 
Louis  Weber, 
Claude  Grundy, 
Kent  Murray. 

On  January  25,  1916,  Charles  Moore,  a  holder  in  due  course,  presented  the 
draft  to  Dawson,  who  dishonored  it.  Moore  at  once  notified  Murray  and 
Weber  of  the  dishonor.  Weber  immediately  notified  Main.  From  whom 
can  Moore  collect  the  $5000?  from  Dawson?  from  Weber?  from  Murray? 
from  Grundy?  If  Weber  should  have  to  pay  it,  would  he  have  any  rights? 
Against  whom? 

6.  Make  a  draft  with  imaginary  parties  which  will  .lot  need  to  be  pre- 
sented for  acceptance  in  order  to  charge  the  drawer. 

7.  Ames  and  Bates  signed  a  note  reading,  "We  or  either  of  us  promise  to 
pay  to  Call  $1000."  At  "maturity  it  was  not  paid.  Name  three  ways  in 
which  Call  can  bring  suit  for  collection. 

8.  Windmuller  entered  into  a  contract  to  sell  and  Pope  to  buy  "about 
1200  tons  of  old  iron  rails  for  shipment  from  Europe  at  the  seller's  option  at  any 
time  from  May  first  to  July  first  at  $35  a  ton."  Before  the  first  of  May  Pope 
notified  Windmuller  that  he  would  not  accept  any  rails  under  the  contract. 
Was  Windmuller  entitled  to  any  damages?     If  so,  how  much? 

9.  Smith  paid  Brown  for  groceries  by  giving  him  an  order  on  Jones, 
Smith's  employer,  for  $15.00,  due  thirty  days  after  sight.  Jones  refused  to 
accept  the  draft,  and  two  months  later  Brown  sued  Smith  for  the  $15.00. 
Smith  had  in  the  meantime  left  Jones'  employ  and  claimed  that  in  settling 
with  Jones  he  had  allowed  the  $15.00.  "vould  Brown  collect  from  Smith? 
Why? 


CHAPTER  XX 

PRESENTMENT  FOR  PAYMENT 

The  student  should  carefully  distinguish  between  present- 
ment for  acceptance,  which  has  been  discussed  in  the  preceding 
chapter,  and  presentment  for  payment,  which  is  the  subject  of 
this  chapter.  Wherever  the  word  presentment  is  used  alone  in 
this  chapter,  it  means  presentment  for  payment. 

207.  When  Presentment  for  Payment  is  Necessary.  The 
acceptor  of  a  draft  and  the  maker  of  a  note  are  the  parties  who  are 
primarily  liable,  for  they  have  engaged  absolutely  to  pay  the 
paper  on  the  day  of  its  maturity.  No  formal  presentment  is 
necessary  to  charge  either  of  them,  for  it  is  their  duty  to  pay  it, 
and  if  they  fail  in  this,  suit  may  be  brought  against  them  at  once. 
If  no  place  of  payment  is  specified  in  the  instrument,  it  is  the  duty 
of  the  party  primarily  liable  to  seek  out  the  holder  and  make 
a  tender  to  him.  If  a  place  of  payment  be  designated  in  the 
instrument,  and  the  maker  or  acceptor  is  ready  and  willing  to 
pay  the  instrument  at  that  place,  his  readiness  there  amounts  to 
a  tender. 

On  the  other  hand  the  contract  of  the  drawer  of  a  draft 
after  acceptance,  and  of  the  indorsers  of  a  draft  or  note,  is  condi- 
tional upon  the  proper  presentment  of  the  instrument  to  the  party 
primarily  liable  and  his  refusal  to  pay  it.  Presentment  for  pay- 
ment is  therefore  a  preliminary  to  charging  those  parties  who  are 
secondarily  liable,  for  their  contract  to  pay  is  conditioned  on 
presentment  to  the  acceptor  or  maker  and  his  refusal  to  pay. 

208.  By  Whom  Presentment  Should  be  Made.  Present- 
ment of  the  instrument  for  payment  must  be  made  by  the  holder, 
or  by  some  person  authorized  to  receive  payment  in  his  behalf. 
So  far  as  the  acceptor  or  maker  is  concerned,  payment  may  be 
safely  made  to  anyone  who  appears  by  the  instrument,  or  its 
indorsements,  to  be  the  legal  holder.  A  presentment  by  such  a 
person  will  be  sufficient  to  charge  the  drawer  or  indorsers  in  the 
event  of  refusal  to  pay. 

151 


152  PRESENTMENT   FOR   PAYMENT 

209.  To  Whom  Presentment  Should  be  Made.  Present- 
ment for  payment  should  be  made  to  the  person  who  is  primarily 
liable  on  the  instrument,  or  if  he  is  absent  or  inaccessible,  to  the 
person  apparently  in  charge  at  the  place  where  the  presentment 
is  made.  If  the  instrument  be  a  draft  the  presentment  should 
be  made  to  the  acceptor;  if  a  note,  to  the  maker.  If  the  primary 
liability  be  joint,  the  presentment  must  be  made  to  all  makers 
or  acceptors.  Should  the  maker  or  acceptor  be  dead,  the  pre- 
sentment should  be  made  to  his  personal  representative,  who  is 
either  the  executor  or  administrator. 

210.  Where  Presentment  Should  be  Made.  When  the 
paper  is  payable  generally,  that  is,  when  no  place  of  payment  is 
designated,  it  should  be  presented  at  the  place  of  business  of  the 
maker  or  acceptor,  or  at  his  home.  If  his  address  be  unknown 
and  cannot  be  discovered,  the  presence  of  the  instrument  in  the 
city  named  in  the  hands  of  the  holder  or  his  agent  on  that  day 
will  be  sufficient.  Presentment  is  usually  made  by  sending  the 
instrument  to  some  bank  for  collection.  The  bank  then  makes 
the  necessary  demand.  Under  all  circumstances,  due  diligence 
must  be  used  to  find  the  principal  debtor,  and  present  the  paper 
to  him,  or  if  a  place  of  payment  be  specified,  to  present  the  instru- 
ment at  that  place,  and  that  place  alone. 

211.  Time  of  Presentment.  Presentment  must  be  made  on 
the  day  of  maturity.  If  made  either  before,  or  after,  the  pre- 
sentment is  insufficient  to  charge  those  parties  who  are  secondar- 
ily liable. 

Not  only  must  the  presentment  be  made  on  the  proper  da>', 
but  it  must  be  made  at  a  reasonable  hour.  If  the  place  of  pre- 
sentment be  at  a  business  office,  the  usual  business  hours  of  the 
day  form  the  time  limit  for  presentment;  if  payable  at  the 
maker's  or  acceptor's  home,  the  limits  are  the  hours  of  rising  and 
retiring  customarily  followed  in  the  community. 

Presentment  is  necessary  to  charge  the  parties  secondarily  liable,  they 
having  agreed  to  pay  in  the  event  that  the  maker  or  acceptor  is  given  a  reason- 
able and  proper  opportunity  to  pay,  and  refuses.  It  would  be  unreasonable 
to  call  one  out  of  bed  at  midnight  to  pay  a  draft  or  note,  and  it  would  be 
improper  to  ask  the  maker  or  acceptor  to  pay  before  the  paper  became  due. 
Therefore  such  a  presentment  will  not  be  sufficient  to  throw  the  responsibility 
for  the  maker's  or  acceptor's  refusal  upon  the  drawer  or  indorsers. 


PRESENTMENT   FOR   PAYMENT  153 

212.  Presentment  of  Checks.  A  check  must  be  presented 
for  payment  within  a  reasonable  time  after  its  issue  or  the  drawer 
will  be  discharged  from  liability  thereon  to  the  extent  of  the  loss 
caused  by  the  delay.  Checks  are  drawn  on  a  bank,  requiring 
the  bank  to  pay  the  payee  out  of  the  funds  of  the  drawer  on 
deposit  in  the  bank.  The  drawer  has  impliedly  promised  to 
pay  if  the  bank  fails  to  do  so.  His  contract  is  conditioned  on  the 
presentment  of  the  check  for  payment  within  a  proper  time, 
because  should  the  check  be  outstanding  for  a  long  period  the 
bank  might  become  insolvent  and  fail  and  the  money  which  he 
had  left  there  to  pay  the  check  might  be  lost.  The  rule  is 
designed  to  cause  the  payee,  who  has  slept  on  his  rights,  to  be 
the' loser  in  such  a  case,  rather  than  the  drawer  of  the  check. 

Reasonable  Time.  It  is  generally  considered  among  busi- 
ness men  that  twenty-four  hours  is  a  reasonable  time  to  hold  a 
check,  and  that  it  should  be  presented  for  payment,  started  on  its 
route  of  collection,  or  indorsed  to  another  person  within  that 
period.  Business  usage  allows  each  indorser  twenty-four  hours 
as  a  reasonable  time  in  which  to  dispose  of  the  check. 

213.  Drafts  Payable  on  Demand.  The  general  rule  that 
presentment  must  be  made  on  the  day  of  maturity  does  not  apply 
to  sight  drafts,  for  the  obvious  reason  that  they  are  matured 
whenever  presented.  The  only  requirement  as  to  them  is  that 
they  must  be  presented  within  a  reasonable  time  or  the  parties 
secondarily  liable  will  be  discharged.  This  length  of  time 
depends  upon  business  usage.  It  has  already  been  noted  that 
under  the  N.  I.  L.  instruments  payable  "at  sight,"  are  treated 
as  payable  on  demand. 

214.  Holidays.  In  fixing  the  period  of  maturity  of  nego- 
tiable paper,  the  question  as  to  presentment  of  paper  becoming 
due  on  a  holiday  is  often  of  importance.  Each  state  fixes  its  own 
holidays,  and  negotiable  paper  becoming  due  on  a  legal  holiday, 
as  Christmas,  Thanksgiving,  or  New  Year's  Day,  or  on  a  Sunday, 
is  properly  presentable  the  day  following,  or  on  the  next  succeed- 
ing business  day  (except  in  States  where  days  of  grace  are  still 
allowed).  Thus,  when  paper  falls  due  on  Saturday,  the  Fourth 
of  July,  it  is  properly  presentable  on  Monday. 


154  PRESENTMENT   FOR   PAYMENT 

215.  Manner  of  Presentment.  Presentment  for  pa>ment 
should  be  made  by  an  actual  exhibition  of  the  paper.  This  is  for 
the  reason  that  the  acceptor  or  maker  has  the  right  to  demand 
that  on  his  payment  the  instrument  should  be  delivered  to  him. 
If  the  place  of  payment  be  at  a  bank,  the  presence  of  the  instru- 
ment in  the  bank  at  maturity,  ready  to  be  delivered  to  any  one 
who  may  be  entitled  to  it  on  payment  of  the  amount  due,'  will 
be  sufficient. 

Delay  in  making  presentment  for  payment  until  after  the 
day  of  maturity  is  excused  only  when  the  delay  is  caused  by 
circumstances  beyond  the  control  of  the  holder,  and  is  not  due 
to  his  fault  or  misconduct.  If  there  be  such  delay  the  holder 
must  prove  that  it  was  due  to  unavoidable  circumstances, 

216.  Presentment  Dispensed  With.  Presentment  for  pay- 
ment is  not  necessary  in  order  to  charge  the  drawer  or  indorsers, 
(1)  when  after  the  exercise  of  reasonable  diligence  it  is  impossible 
to  find  the  party  primarily  liable  and  presentment  cannot  be 
made;  and  (2)  when  presentment  has  been  expressly  or  impliedly 
waived  by  the  parties  secondarily  liable.  A  waiver  of  present- 
ment is  made  if  the  indorsers  write  on  the  instrument  words 
similar  to  "Presentment  and  notice  waived,"  or  if  they  have  at  or 
about  the  time  of  maturity  entered  into  an  agreement  with  the 
holder  that  they  will  pay  the  instrument,  because  of  the  threat- 
ened dishonor  by  the  maker  or  acceptor.  The  first  is  an  express 
waiver;  in  the  second  instance  the  waiver  is  implied. 

217.  The  Instrument  is  Discharged  if,  upon  presentment  for 
payment,  it  is  paid.  The  drawer  and  indorsers  are  relieved  of  all 
further  liability,  and  the  instrument  itself  is  usually  delivered  to 
the  party  making  payment,  or  is  canceled  upon  its  face,  or 
(usually)  both. 

218.  When  Pa3rment  is  Refused,  the  instrument  is  said  to  be 
dishonored,  and  the  holder's  rights  against  the  parties  secondarily 
liable,  the  drawer  or  indorsers,  become  important.  If  the  holder 
has  performed  the  necessary  acts  of  presentment  for  payment, 
and  the  instrument  is  dishonored,  only  one  more  process  remains 
necessary  for  him  to  perform  before  he  can  charge  the  drawer  or 
indorsers  with  tWe  payment  of  the  instrument.  This  process  is 
called  protest  and  notice  of  dishonor  and  is  designed  to  protect 


PRESENTMENT   FOR   PAYMENT  155 

tne  parties  secondarily  liable  by  requiring  that  they  be  given 
notice  of  the  dishonor  by  a  formal  method. 

219.  A  Protest  is  a  form  of  solemn  declaration  written  by  a 
notary  public  to  be  attached  to  the  instrument,  or  to  a  copy  of  it, 
stating  that  he  duly  presented  the  note  or  draft  for  payment 
and  that  it  was  dishonored.  Protest  is  required  in  the  case  of  a 
foreign  draft,  as  distinguished  from  inland  drafts  and  notes,  and 
is  usually  made  even  when  not  required,  because  the  signed  and 
sealed  statement  of  a  notary  public  is  effective  evidence  that  the 
presentment  was  properly  made  and  payment  refused. 

Business  usage  is  for  the  holder  to  employ  some  notary 
public  to  make  this  presentment,  and  in  the  event  of  dishonor,  to 
make,  on  the  day  of  the  dishonor,  a  certificate  of  protest  of  the 
instrument.  The  protest  is  usually  written  on  a  blank  form  and 
enumerates  the  following  facts:  (1)  Time  of  presentment; 
(2)  Place  of  presentment;  (3)  Fact  of,  manner  of,  and  reason 
for  presentment;  (4)  Fact  that  payment  was  demanded; 
(5)  Fact  of  dishonor;  (6)  Name  of  party  to  whom  presented; 
(7)  Name  of  party  by  whom  presented ;  (8)  Copy  of  the  instru- 
ment presented,  attached  to  protest. 

Certificate  of  Protest 

State  of  Illinois,   \ 

Cook  County,  j  '  Jjit  tt  Sln0tDll,  That  on  this  30th  day  of  January,  in 
the  year  of  our  Lord  one  thousand  nine  hundred  and  sixteen,  I,  E.  J.  Hoskins, 
a  Notary  Public,  duly  commissioned  and  sworn,  and  residing  in  the  City  of 
Chicago,  in  said  County  and  State,  at  the  request  of  W.  F.  Cadwell,  went  with 
the  original  note,  a  copy  of  which  is  hereto  attached,  to  the  office  of  Oscar  E.  Bart- 
lett,  and  demanded  payment  thereon,  which  was  refused. 

Whereupon  I,  the  said  Notary,  at  tJie  request  of  the  aforesaid,  did  protest, 
and  by  these  Presents,  do  ibtAtxanlf  ^tsUCt.  as  well  against  the  maker  of  said 
note  and  the  endorsers  thereof,  as  all  others  whom  it  may  or  doth  concern,  for 
exchange,  re-exchange,  and  all  costs,  charges,  damages,  and  interest  already 
incurred  by  reason  of  the  non-payment  of  the  said  note. 

And  I,  the  said  Notary,  do  hereby  certify  tJiat  on  the  same  day  and  year 
above  written,  within  forty-eight  hours  from  the  time  of  such  protest,  due  notice 
of  the  foregoing  Protest  was  put  in  the  Pos  toff  ice  at  Chicago,  III.  as  follows: 
Notice  for  Samuel  H.  Phillips,  Ottawa,  III.,  notice  for  Harry  Watkins,  LaGrange, 
III.,  notice  for  M.  J.  Morris,  Chicago,  III.  Each  of  the  above  named  places  being 
the  reputed  place  of  residence  of  the  person  to  whom  this  notic  was  directed. 

3n   tEeStimonp   WEi^itxtat,  I  have  hereunto  set   my 

(Place  for  Seal.)       hand  and  affixed  my  Official  Seal,  the  day  and  year 
first  above  written.       E.  J.  HOSKINS,  Notary  Public. 


156 


PRESENTMENT   FOR   PAYMENT 


•  «<  PraMt  0(  Mm>. 


~6^^^^y^^(L,^y  .%o    \a/6. 


D      ,^^.n^^  fn,.  $  J~0  0. 


^ 


This  certificate,  being  executed  by  an  official  of  the  state, 
is  evidence  that  the  proper  presentment  was  made,  and  if  any 
question  is  raised  about  the  presentment  it  may  be  shown  to  the 
court,  making  it  unnecessary  to  produce  further  witnesses. 

220.  Notice  of  Dishonor.  The  holder  of  dishonored  paper, 
whether  he  protests  the  paper  or  not,*  must  always  send  notice 
of  the  dishonor  to  all  prior  indorsers  whom  he  wishes  to  hold, 
the  notice  being  a  statement 

of  the  fact  of  dishonor  and  Notice  of  Protest 

of  an  intention  to  hold  liable 
the  party  notified .  The  notice 
should  be  presented  or  mailed 
within  twenty- four  hours  after 
the  dishonor.  This  prompt- 
ness is  necessary  in  order  to 
give  the  parties  secondarily 
liable  sufficient  opportunity 
to  protect  themselves  by 
appropriate  steps  against  the 
party  primarily  liable,  who 
dishonored  the  instrument, 
and  against  other  parties 
secondarily  liable. 

When  a  notary  is  em- 
ployed to  protest  a  note  or 
draft,  he  usually  also  mails 
notices  of  dishonor,  and  his 
fees,  which  are  specified  by 
law,  are  added  to  the  amount  to  be  paid  by 
drawer,  or  majker. 

221.  If  Notice  be  Waived  by  a  party  secondarily  liable, 
as  described  in  Sec.  216,  neither  protest  nor  notice  is  required  to 
charge  him  with  liability. 


Payable     Ua^^^y^.  /a/  ^ 


Endorsed  hijQy^^^f'>^-^t^-z,^ZyT'iV--y^^.../C£^^ 

Being  this  day  due  and  unpaid,  and  by  me  PROTESTED 
for  non-payment,  1  hereby  notify  you  that  the  payment 
thereof  has  been  duly  demaadsd.  and  that  the  holders 
look  to  you  for  payment,  damages,  interest  and  costs. 
Done.at  the  request  nf  ^^rfay* ~tnaW.*jf-^,//Cy 

^'^^ J^-^ ^<P-'!Cr:/ J  ^  ^ 


^J^_<^f^!itifeti?Z-<^ 


the    indorser. 


*  Notice  of  dishonor  is  always  required,  to  hold  the  f)arties  secondarily 
liable.  (Protest  is  always  desirable,  but  is  not  required  by  law  in  case  of 
inland  bills,  though  it  is  required  in  case  of  foreign  bills.) 


PRESENTMENT   FOR   PAYMENT 


157 


REVIEW  QUESTIONS 


1.     Inspect  the  following  draft : 


This  draft  was  presented  for  payment  by  Morton  to  Farnsworth  at  his 
home  in  Cambridge,  at  nine  o'clock  in  the  evening  of  July  12,  and  Farnsworth,- 
who  had  retired  for  the  night,  put  his  head  out  of  an  upper  story  window  and 
told  Morton  to  go  home  and  keep  still.  Morton  immediately  sent  notice 
of  dishonor  to  Gray,  who  claimed  to  have  been  discharged  because  of  an 
improper  presentment.     Was  Gray  right?     Why? 

2.  The  Victoria  Hotel  Company  was  an  indorser  of  a  draft  which  had 
been  dishonored.  The  holder  sent  a  notice  of  dishonor  to  the  hotel  by  a 
messenger  boy,  who  left  the  notice  at  the  cashier's  window,  but  failed  to  call 
the  attention  of  anyone  to  it.  Was  this  notice  sufficient  so  that  the  hotel 
company  could  be  held  liable  to  pay  the  instrument  as  an  indorser?     Why? 

3.  A  gives  his  note  to  B  payable  in  wheat.  C  innocently  purchases  the 
note  from  B  for  value  before  maturity,  and  in  the  usual  course  of  business, 
but  at  maturity  A  refuses  payment,  claiming  that  the  paper  was  secured  with- 
out consideration.     Can  C  collect  it  from  A? 

4.  A  secures  B's  note  without  consideration  and  indorses  it  before  matur- 
ity and  for  value  to  C,  who  has  knowledge  of  the  lack  of  consideration. 
Can  C  collect  it  from  B? 

5.  In  the  above  case,  suppose  C  purchased  the  paper  innocently  before 
maturity  and  for  value,  and  then  transferred  it  to  D,  who  had  knowledge  of 
the  lack  of  consideration  between  A  and  B.     Could  D  collect  it  from  B? 

6.  What  would  be  your  answer  to  No.  5,  provided  the  sale  from  C  to 
D  was  after  maturity? 

7.  A  playfully  writes  his  name  on  a  blank  paper  and  hands  it  to  B.  B 
fills  out  a  promissory  note  above  it  and  at  once  sells  it  to  C,  who  knows  nothing 
of  the  deception  practiced  by  B.     Can  C  collect  it  from  A? 

8.  A  owing  B  $100  writes  and  signs  a  promissory  note  for  that  amount, 
payable  to  B  or  bearer,  intending  to  deliver  it  next  day.  A  locks  the  paper 
in  his  safe,  but  in  the  night  a  burglar  breaks  open  the  safe,  gets  the  note  and 
sells  it  to  C,  an  innocent  purchaser,  for  value  and  before  maturity.  C,  after 
maturity,  sells  it  to  D.  Could  any  of  these  parties  collect  the  note  from  A? 
If  so,  which  ones? 


I 


158  PRESENTMENT  FOR  PAYMENT 

9.  A  sells  a  bill  of  goods  to  B  for  $1,000,  for  which  B  indorses  to  A 
C's  note,  payable  at  the  First  National  Bank  of  Chicago.  At  maturity  C 
is  insolvent.     What  steps  must  A  take  to  hold  B? 

10.  Suppose  that  A  draws  a  draft  on  B,  in  favor  of  C;  but  B  has  no 
funds  in  hand  belonging  to  A.     What  steps  must  C  take  to  charge  A? 

11.  Suppose  a  note  reads:  "I,  J.  S.  Lee,  president  of  the  E.  &  M.  Ry. 
Co.,  promise  to  pay,  etc.,"  and  is  signed  J.  S.  Lee,  Pres.  E.  &  M.  Ry.  Co., 
whose  note  is  it? 

12.  Write  a  negotiable  promissory  note  for  $250,  at  three  months,  and 
state  the  day  of  the  month  when  the  same  will  mature.  Also  a  draft  for 
same  amount  and  time,  and  give  the  technical  names  of  all  the  parties. 

13.  A  makes  his  note  to  B's  order,  and  before  deliver^'  C  signs  his  name 
on  the  back.     B  indorses  it  over  to  D.     What  is  C's  liability  to  B?  to  D? 

14.  A  forges  the  name  of  B  as  drawer  of  a  draft  payable  to  himself,  at 
ten  days'  sight.  The  drawee  accepts  and  the  bill  passes  by  indorsement  to 
C,  an  innocent  holder,  for  value,  and  before  maturity.  What  are  the  rights 
if  any,  of  each  holder  against  the  acceptor?  What  rights  has  the  acceptor 
against  B? 

15.  A  note  payable  "to  order"  was  indorsed  by  A  to  B,  "without 
recourse."  B  indorses  in  full  to  C.  The  note  proved  to  be  a  forgery,  and 
the  maker  refused  payment.  Can  C  collect  from  B?  If  so  what  steps  must 
he  take?     Can  he  collect  from  A?     Why? 

16.  A  gives  his  negotiable  note  to  B  for  $475.  B  alters  the  amount  so 
that  it  calls  for  $575,  and  indorses  the  paper  in  full  to  C  for  value,  before 
maturity,  C  knowing  nothing  of  the  alteration.  Can  C  collect  the  $475 
from  A?  What  is  the  liability  of  A?  Are  there  any  circumstances  under 
which  C  could  collect  the  $575?     If  so,  what  are  they? 

17.  A  gives  B  his  note  payable  "to  order,"  and  B  indorses  it  "Pay  C 
only."  C  indorses  the  paper  to  D  in  payment  of  a  personal  debt.  What  are 
D's  rights? 

18.  Give  the  facts  of  a  case  in  which  A,  in  his  own  name,  would  have 
the  right  to  sue  B,  though  they  never  had  any  dealings  with  each  other,  and 
B  does  nor  even  know  of  the  existence  of  A. 

19.  A  gives  B  his  non- negotiable  note,  which  B  transfers  to  C  by  an 
indorsement  in  full.     What  is  the  liability  of  A  to  C? 

20.  On  the  18th  of  August  A  gave  B  his  check  in  payment  of  a  debt. 
B  presented  the  check  at  the  bank  on  the  25th,  but  the  bank  had  failed,  clos- 
ing its  doors  at  the  close  of  business  hours  on  the  19th.  On  whom  will  the 
loss  fall,  and  why? 

21.  In  the  above  case,  suppose  that  on  the  19th  B  indorsed  the  check 
to  C,  who  goes  on  the  20th  to  present  it,  but  finds  the  doors  closed,  as  did  B. 
On  whom  will  the  loss  fall? 

22.  A  drew  his  check  in  favor  of  B  for  $100.  B  indorsed  it  over  to 
C,  who  raised  it  to  $190.  On  presentation  at  the  bank  it  was  paid.  Can  the 
bank  recover  from  C,  and  if  so,  how  much?  Are  there  any  circumstances 
under  which  A  or  B  would  be  liable? 


PRESENTMENT  FOR  PAYMENT 


159 


23.  A  gave  his  note  to  B  at  60  days. ,  After  the  note  was  given  B  was 
adjudged  a  lunatic,  and  a  conservator  appointed  for  him.  B,  however,  still 
retained  the  note  and  sold  it  to  C  for  value.  C  indorsed  it  without  recourse 
to  D,  who  held  it  at  maturity.     What  is  C's  liability? 

24.  A  engaged  B  to  make  a  large  purchase  of  corn  for  him,  and  left 
with  him  for  that  purpose  a  blank  promissory  note  signed.  B  did  not  make 
the  purchase,  but  filled  out  the  note  for  a  large  amount  and  indorsed  it  over 
to  C  for  value  before  maturity,  C  knowing  nothing  of  B's  bad  faith.  C 
indorsed  it  for  value  to  D,  who  knew  of  the  origin  of  the  paper.  Can  D  col- 
lect it? 

25.  B  sent  his  collector  to  A  for  a  settlement  of  his  account.  A  gave 
him  his  check  payable  to  B  or  bearer,  but  on  his  return  the  collector  lost  the 
check.  C  found  the  check  and  sold  it  to  D.  Can  B  stop  payment  of  the 
check  by  notifying  the  bank? 

26  .     Inspect  the  following  instruments: 


a.'i-nn-  — 


St.   Panl.   glnn.,    Jiina   1, /^f> 


y^^f^/Vi^J^Jip/- Buy   M-    atrond 


r^iy 


Thlrty--flTa   &   no/lQQ 


'■P^ta^       InteroBt  at   7   per, cent. 


per  cent . 


--700.00- 


ChlcaiRO.    111..   Augxtat   22,  y/.9 '^^ 

At    SiTt.y  flftya    Sight Cy^/f/^jh" 


tS       Seven  Handred  &  no/100- 


^cJau(e^/ieceim/^^m//^Mae'.^^^ 


G>J/y  Ben.lamin  S.   Reynoldg 


y^            432  Washington  Street 
y/ir' Milwaukee.    Wisconsin 


TA-^sC-d^n 


In  each  of  the  above  instruments,  who  are  the  parties  primarily  liable? 
Who  secondarily  liable?  To  whom  should  presentment  for  payment  be  made 
and  where?  To  whom  should  notice  of  dishonor  be  sent,  if  the  draft  is  not 
paid? 


CHAPTER  XXI 
INTEREST 

222.  Interest  is  the  use  of  money.  For  this  use  the  user  pays 
the  owner  a  consideration,  usually  stated  as  a  given  per  cent 
of  the  principal  sum  for  each  year  of  use.  In  popular  language 
the  money  paid  for  interest  in  itself  called  the  "interest,"  though 
this  is  not  strictly  correct.  I 

223.  Simple  Interest  is  interest  computed  solely  upon  the 
principal  sum,  as  distinguished  from  compound  interest. 

224.  Compound  Interest  is  interest  computed  upon  the  prin- 
cipal sum  and  also  upon  unpaid  sums  due  for  interest.     Com- 
pound interest  is  of  two  kinds :    (a)  Simple  interest  upon  unpaid  • 
interest    due    upon    principal,    often    called    annual    interest; 
(b)  interest  upon  interest  upon  interest  ad  infinitum. 

The  general  rule  is  that  in  the  absence  of  contract  therefor, 
express  or  implied,*  or  of  some  statute  requiring  it,  f  compound 
interest  is  not  allowed  to  be  computed  upon  a  debt.  This 
rule  includes  both  classes  of  compound  interest. 

Even  when  there  is  a  contract  therefor,  the  right  to  collect  compound 
interest  is  denied  in  some  states,  unless  such  contract  is  independent  of  the 
principal  contract  and  be  made  after  the  simple  interest  is  due.  Leonard  vs. 
Villars,  Admr.,  23  111.  377;  First  National  Bank  of  Galesburg  vs.  Davis,  108 
111.  633;  Harris  vs.  Dressier,  19  111.  467. 

Compound  Interest  ad  infinitum  is  legal  only  in  California, 
Montana,  Iowa,  Tennessee,  Missouri,  Nebraska,  and  Texas. 
In  Missouri  interest  may  not  be  compounded  oftener  than  once 


*  Compound  interest  has  been  implied  in  specific  cases,  because  of  a  gener- 
ally prevailing  usage  in  a  given  line  of  business  or  because  peculiar  circum- 
stances have  required  it,  in  California,  Dakota,  Iowa,  Tennessee,  Kentucky, 
Massachusetts,  Michigan,  New  Hampshire,  New  Jersey,  New  York,  and 
Vermont. 

t  Compound  interest  is  usually  allowed  by  statute  in  the  calculation  of 
refunds  in  case  of  misappropriation  of  trust  funds  by  executors  and  adminis- 
trators.    In  this  case  it  is  in  the  nature  of  a  penalty. 

160 


f 


INTEREST  161 


a  year.  In  Nebraska  and  Texas  interest  may  be  compounded  up 
to  the  point  where  the  total  interest  equals  what  it  would  be  at 
the  maximum  legal  rate,  but  not  beyond  that. 

Annual  Interest.  The  general  rule  is  that  if  interest  is  not 
paid  when  by  the  terms  of  the  original  contract  it  falls  due,  it 
does  not  draw  interest,  but  in  most  states,  the  parties  have  a 
right  to  contract  in  advance  that  if  unpaid  it  may  itself  bear 
simple  interest.* 

Simple  interest  upon  principal,  in  case  of  a  note,  is  sometimes  evidenced 
by  coupon  notes  attached  to  the  principal  note,  these  coupon  notes  being 
themselves  interest-bearing. 

225.  Simple  Interest  Always  Presumed.  The  court  will 
never  assume  that  compound  interest  of  either  class  is  due.  In 
the  absence  of  a  specification  in  the  contract,  simple  interest  is 
always  presumed. 

226.  When  Interest  is  Payable.  The  general  rule  is  that 
interest  becomes  due  and  payable  at  the  same  time  as  the  prin- 
cipal, and  not  before,  except  by  contract.  Therefore,  a  note 
running  longer  than  one  year  and  bearing  interest  should  state 
that  the  interest  is  payable  annually  if  such  is  the  intention; 
otherwise  it  cannot  be  collected  until  the  note  is  due. 

111.  National  Bank  vs.  School  Trustees,  211  111.,  500;  Motsinger  vs.  Miller, 
59  Kans.,  573;  Tanner  vs.  Dundee  Land  Inv.  Co.,  12  Fed.  646. 

227.  Legal  Interest  is  that  rate  of  interest  prescribed  by 
the  law  of  the  state  or  country  which  will  prevail  when  there  is 
no  special  agreement  as  to  rate  of  interest  between  the  parties. 

Most  states  have  also  adopted  a  maximum  lawful  rate, 
beyond  which  parties  may  not  validly  contract  for  the  payment 
of  interest.     This  is  called  the  maximum  rate. 

228.  On  What  Interest  is  Allowed.  The  law  allows  interest 
only  on  contracts,  express  or  implied,  for  the  payment  of  interest, 
or  as  damages  for  the  wrongful  detention  of  money.     Interest  is 


*  Annual  interest  will  be  allowed  by  contract  but  not  by  inference  in  all 
states  except  Connecticut,  Delaware,  Idaho,  Maine,  Massachusetts,  New  Jersey, 
Nebraska,  and  Utah.  In  Nebraska  the  total  interest  contracted  for  must 
not  exceed  the  interest  upon  the  original  principal  at  the  maximum  legal  rate. 


162  INTEREST 

created  expressly  when  the  parties  to  a  contract  agree  as  one  of  its 
terms  that  interest  shall  be  paid,  which  is  usually  done  by  insert- 
ing a  clause  which  reads,  "bearing  interest,"  "with  interest,"  or 
some  similar  expression.  Interest  is  payable  by  implied  cotitract 
when  the  parties  make  no  express  agreement  therefor,  but  from 
the  circumstances  of  their  dealings  the  law  implies  that  they 
contracted  in  reference  thereto.  Such  circumstances  may  exist 
by  virtue  of  the  customs  or  usages  of  the  particular  trade  which 
the  parties  are  considered  to  have  had  in  mind  as  a  part  of  their 
contract,  or  because  of  the  nature  of  previous  dealings  between 
the  parties. 

The  commercial  importance  of  interest  is  confined  largely  to 
debts,  either  in  the  form  of  negotiable  instruments  or  otherwise. 
As  a  general  rule  interest  is  allowed  on  all  written  instruments 
stipulating  the  payment  of  money,  interest  being  allowed  after 
the  payment  is  due.  In  accordance  with  this  rule,  no  interest 
is  allowed  on  negotiable  paper  before  maturity  unless  the  words 
"with  use,"  "with  interest,"  or  some  equivalent  expression  be 
made  a  part  of  the  note.  The  statutes  of  the  various  states  pro- 
vide for  the  allowance  of  interest  upon  judgments  after  they  have 
been  rendered,  and  the  rate  allowed  is  ordinarily  that  rate  which 
is  the  legal  rate  in  the  state  where  the  judgment  is  rendered. 

229.  What  Law  Determines  the  Rate.  The  rate  of  interest 
which  a  contract  bears,  and  also  the  question  whether  it  bears 
interest  at  all,  are  both  determined  by  the  law  of  the  place  where 
the  contract  is  expressly  or  impliedly  to  be  performed.  If  no 
place  of  performance  is  specified,  it  will  bear  interest  according 
to  the  law  of  the  place  where  it  was  made. 

If  a  draft  be  drawn  in  Wisconsin  for  a  debt  payable  there,  upon  a  person 
in  Illinois,  and  the  draft  be  not  accepted,  an  action  may  be  brought  by  the 
holder  against  the  drawer,  and  the  laws  of  Wisconsin  respecting  interest 
will  apply.  On  the  other  hand,  if  the  draft  had  been  accepted  in  Illinois  and 
an  action  were  brought  against  the  acceptor,  the  laws  of  Illinois  respecting 
interest  would  govern.  All  misunderstanding  may  be  avoided  by  the  parties 
expressly  providing  for  a  rate  of  interest,  or  providing  that  the  laws  of  a  par- 
ticular state  shall  control. 

230.  Interest  on  Accounts.  If  goods  are  sold  on  terms  of 
credit  which  make  the  bill  payable  on  a  certain  day,  and  the  bill 
is  not  paid  on  that  day,  interest  is  due  thereafter,  whether  so 


INTEREST  163 

specified  or  not.*  Many  business  houses  specify  this,  however, 
so  that  there  shall  be  no  misunderstanding.  If  goods  are  sold 
on  credit  without  any  specified  date  of  payment,  interest  cannot 
be  collected  unless  there  is  a  special  agreement  to  that  effect. 
If  a  balance  be  agreed  upon  as  of  a  certain  date,  however,  this 
will  render  it  liquidated  so  as  to  draw  interest  thereafter.  When 
there  has  been  a  demand  for  payment  of  a  balance  due,  and  this 
demand  has  been  wrongfully  refused,  the  demand  has  the  effect 
of  a  liquidation  of  the  account  and  interest  is  allowed  from  the 
date  of  the  demand. 

231.  Interest  on  Partial  Payments.  When  a  debt  is  carry- 
ing interest,  and  a  partial  payment  is  made,  a  question  arises  as  to 
whether  this  payment  should  be  credited  upon  the  interest  then 
due  or  upon  the  principal  debt.  Three  rules,  known  as  the 
United  States  rule,  the  Connecticut  rule,  and  the  Merchants'  rule, 
have  been  developed  by  the  courts.  The  United  States  rule  is 
the  rule  applied  in  practically  all  the  states  in  the  absence  of  a 
special  agreement  between  the  parties.  This  rule  is  as  follows: 
"When  a  partial  payment  is  made,  apply  the  payment  in  the 
first  place  to  discharge  the  interest  then  due.  If  the  payment 
exceeds  the  interest,  the  surplus  goes  towards  discharging  the 
principal  and  the  subsequent  interest  is  to  be  computed  on  the 
balance  of  the  principal  remaining  due.  If  the  payment  be  less 
than  the  interest,  the  surplus  of  the  interest  must  not  be  taken  to 
increase  the  principal;  but  interest  continues  on  the  former 
principal  until  the  period  when  the  payments,  taken  together, 
exceed  the  interest  due,  and  then  the  surplus  is  to  be  applied 
toward  discharging  the  principal ;  and  interest  is  to  be  computed 
thereafter  on  the  balance."! 

*  The  student  must  bear  in  mind  that  the  forbearance  of  creditors  —  the 
fact  that  creditors  do  not  as  a  rule  insist  upon  this  right  —  does  not  in  the  least 
affect  the  legal  status  of  the  right.  Interest  can  be  legally  collected  on 
overdue  accounts,  by  any  creditor,  in  any  of  the  cases  above  enumerated. 

t  This  statement  of  the  rule  was  made  by  Chancellor  Kent  in  the  case  of 
Connecticut  vs.  Jackson,  1  Johns  Ch.  (N.  Y.)  13.  It  has  been  expressly 
approved  in  Delaware,  Florida,  Illinois,  Indiana,  Iowa,  Kentucky,  Louisiana, 
Maine,  Maryland,  Massachusetts,  Michigan,  Missouri,  Nebraska,  New  Hamp- 
shire, New  Jersey,  New  York,  North  Carolina,  Ohio,  Tennessee,  Texas,  Utah, 
Virginia,  Wisconsin,  West  Virginia  and  Kansas.  It  is  not  followed  in  Connec- 
ticut, as  is  noted  in  the  text,  but  in  all  other  states  it  may  be  safely  predicted 
that  the  United  States  rule  would  be  applied  by  the  courts  should  the  question 
be  presented  to  them. 


164  INTEREST 

The  Connecticut  rule  has  appHcation  in  Connecticut  only. 
It  is  a  modification  of  the  United  States  rule  to  the  extent  that  it 
provides  that  the  first  partial  payment  shall  not  be  applied  to  the 
extinguishment  of  the  interest,  unless  such  payment  be  made  at 
least  one  year  from  the  time  when  the  interest  began  to  run,  nor 
shall  subsequent  partial  payments  be  so  applied  unless  there  is  at 
least  one  year  between  them.  This  is  upon  the  ground  that 
interest  cannot  be  due  except  from  year  to  year.* 

The  Merchants^  rule  is  also  comparatively  unimportant. 
The  custom  is  prevalent  in  some  mercantile  centers  in  the  settling 
of  accounts  to  charge  interest  on  all  debit  items  and  to  allow 
interest  on  all  credit  items,  interest  on  each  item  being  figured 
from  the  date  of  the  item  until  the  date  of  the  settlement  or 
adjustment.  This  is  known  as  the  merchants'  rule.  It  is  only 
applied  by  the  courts  when  there  is  an  express  or  implied  agree- 
ment between  the  parties  to  adopt  this  as  the  correct  means  of 
computing  the  interest.  In  a  few  instances  proof  of  a  course  of 
dealings,  or  custom  between  the  parties,  has  been  recognized  as 
sufficient  to  establish  an  implied  contract  to  apply  the  merchant's 
rule.  In  general,  however,  it  is  stated  that  he  who  seeks  to  em- 
ploy this  rule  has  the  burden  of  proving  an-agreement  to  adopt  it.  f 

232.  Usury  is  an  illegal  or  exorbitant  rate  charged  for 
interest.  Any  rate  beyond  the  maximum  rate  allowed  by  law  is 
usurious.  The  penalty  for  contracting  for  a  greater  rate  varies 
in  the  different  states,  and  a  contract  may  be  usurious  in  one  and 
perfectly  valid  in  another. 

All  kinds  of  subterfuges  are  resorted  to  in  order  to  avoid  the 
penalties  provided  for  usury.  Sometimes  the  borrower  is 
required  to  receive  a  small  article  of  personal  property  at  an 

*  This  rule  was  adopted  by  the  Supreme  Court  in  Connecticut  at  an 
early  date,  i.e.,  1784.  Kirby's  Reports,  p.  49;  Kissam  vs.  Burral,Kirby335; 
Treat  vs.  Stanton,  14  Conn.  457.  It  continues  to  be  the  law  in  that  jurisdic- 
tion. 

t  The  following  cases  have  recognized  the  merchants'  rule  as  the  correct 
method  of  computation  of  interest  under  special  circumstances:  Stoughton 
vs.  Lynch.  2  Johns  Ch.  (N.  Y.)  210;  Smith  vs.  Shaw,  2  Wash.  167;  Hart 
vs.  Dewev,  2  Paige  (N.  Y.)  207;  Backus  vs.  Minor,  3  Cal.  231;  Pearson  vs. 
Grice,  8  Fla.  214;  Berkey  vs.  Gay  (Mich.  1904)  100  N.  W.  920.  In  the  last 
named  case  this  rule  was  confused  by  the  court  with  the  Connecticut  rule. 
The  right  to  imply  an  agreement  to  use  the  merchants'  rule  has  been  expressly 
denied  in  Averill  vs.  Verner,  22  Oh.  St.  372,  and  Lewis  vs.  Bacon,  3  Hen.  &  M. 
(Va.)  89. 


INTEREST  165 

exorbitant  figure,  and  in  this  manner  the  lender  endeavors  to  get 
an  extra  return  on  his  money  over  the  legal  rate.  In  all  such 
cases  the  law  looks  to  the  intent,  and  if  the  contract  appears  to 
have  been  devised  for  the  purpose*  of  securing  a  usurious  rate 
the  courts  will  impose  the  penalties.  As  a  general  rule,  if  an 
obligation  has  already  been  paid  together  with  a  usurious  rate 
of  interest,  the  penalty  will  not  be  applied,  and  the  debtor  cannot 
recover  his  money,  though  this  rule  is  modified  in  some  states. 

When  a  note  executed  in  one  state  is  made  payable  in  another,  the  law 
of  the  state  of  performance  will  govern  in  determining  whether  or  not  the 
instrument  is  usurious.     140  U.  S.  101. 

It  is  not  deemed  usurious  for  interest  to  be  taken  in  advance, 
neither  is  it  unlawful  to  purchase  a  third  person's  note  at  a  great 
reduction  from  its  face  value,  for  in  such  cases  the  reduction  is 
not  intended  as  a  means  of  escaping  the  penalty  for  an  unlawful 
rate  but  represents  the  profits  which  the  buyer  demands  as  return 
for  his  assuming  the  risk  of  being  able  to  collect  the  obligation. 
Similarly,  if  money  is  loaned  at  a  risk,  and  the  contract  provides 
that  interest  is  to  be  paid  out  of  the  profits  or  not  at  all,  the 
collection  of  a  high  rate  is  not  usury,  for  the  lender  is  entitled  to 
large  returns  in  the  event  of  the  success  of  such  an  enterprise. 

When  a  borrower  pays  a  broker  a  fee  for  finding  him  a  lender, 
this  fee  does  not  make  the  contract  usurious.  But  if  the  money 
which  the  borrower  receives  really  belongs  to  the  broker,  and  the 
fee  is  not  paid  merely  as  a  charge  for  his  time  and  expenses  in 
negotiating  the  loan,  the  contract  may  thereby  become  usurious, 
for  otherwise  the  purpose  of  the  statutes  relating  to  lawful 
interest  would  be  thwarted. 

A  table  showing  the  legal  rate,  maximum  lawful  rate,  and  the  penalties 
provided  for  usurious  contracts  in  the  several  states  is  given  in  the  appendix. 


REVIEW    QUESTIONS 

1.  Ames  gave  Smith  his  note  for  $500  payable  on  demand.  No  pro- 
vision was  included  as  to  the  payment  of  interest.  May  Smith  collect 
interest  on  this  obligation?     From  what  date?     What  rate?     Why? 


*  The  fact  that  the  consideration  is  small  will  not  of  itself  be  considered 
evidence  of  usurious  intent,  for  the  law  does  not  weigh  consideration. 


166  INTEREST 

2.  On  July  1  Jones  gave  Brown  his  note  at  sixty  days  for  $100,  but  no 
mention  was  made  of  any  interest.  If  this  note  is  paid  at  maturity  what 
amount  may  Brown  demand? 

3.  In  the  above  case,  the  note  was  not  paid  until  October  1  following. 
What  amount  may  Brown  claim  in  your  state? 

4.  A,  being  pressed  for  funds,  borrowed  $500  from  B  and  agreed  to  pay 
him  two  per  cent  a  month  for  interest.  If  the  note  be  for  nine  months,  how 
much  can  B  collect  in  your  state  at  maturity? 

5.  A,  of  Denver,  borrows  of  B,  of  Chicago,  $1000,  on  a  note  for  ninety 
days,  payable  at  the  First  National  Bank  of  Chicago.  The  note  bears  interest 
at  twelve  per  cent  per  annum.  Is  this  usury,  and  if  so,  how  much  can  be 
collected? 

6.  On  Oct.  26,  1916,  Erskine  gives  two  notes  to  Blair  each  for  $3000  and 
due  in  three  years.  One  reads  "With  interest  at  6%  per  annum";  the  other 
reads,  "With  interest  at  6%  per  annum  payable  annually."  If  each  of  these 
notes  is  paid  in  full  when  due  and  no  part  is  paid  until  due,  what  must  be  the 
amount  of  the  check  given  to  pay  each  of  the  notes  on  Oct.  28,  1919? 

7.  A,  a  minor,  was  indebted  to  B.  He  gave  in  payment  his  note, 
which  B  indorsed  in  full  to  C.     Is  A  liable  to  C?     Is  B  liable? 

8.  In  the  above  case  suppose  B  had  indorsed  without  recourse.  Would 
he  then  be  liable? 

9.  A  purchased  from  B  a  bill  of  goods  to  the  amount  of  $200.  A 
gave  him,  without  indorsement,  C's  note  payable  to  bearer  for  $200.  (a)  Sup- 
pose C  is  a  minor;  (b)  suppose  C's  signature  be  forged;  (c)  suppose  C  prove 
to  be  insolvent;  is  A  liable  in  any  case? 

10.  A  draft  on  B  payable  to  C  and  purporting  to  be  drawn  by  A  was 
presented  to  B  and  he  accepted  it.  B  afterward  learned  that  A's  signature 
was  forged  and  when  the  draft  was  presented  for  payment  by  D,  an  innocent 
indorsee,  B  refused  to  pay  it.     What  are  the  rights  of  the  different  parties? 

11.  A  note  is  payable  to  L.  M.  Swift  and  he  wishes  to  transfer  it  to 
C.  M.  Miller  without  becoming  responsible  for  its  payment.  Write  his 
indorsement. 

12.  Suppose  he  wished  to  indorse  it  so  it  would  not  be  further  negotiable, 
how  could  he  do  it? 

13.  A  note  payable  to  order  was  stolen  from  the  owner  and  his  indorse- 
ment forged  thereon.  After  passing  through  several  subsequent  holders' 
hands,  the  owner  discovered  the  note  in  a  bank.  What  are  his  rights  as  against 
the  bank — can  he  secure  the  possession  of  the  note  and  if  so  what  is  the  name 
of  the  action  he  must  bring? 

14.  A,  when  indorsing  a  negotiable  promissory  note  wrote  over  his  sig- 
nature the  words  "presentment,  demand,  protest,  notice,  and  waived."  At 
maturity  the  note  was  not  paid,  in  fact  was  not  even  presented.  Is  A  liable? 
Why? 

15.  A  gives  his  note  to  B  payable  at  Union  National  Bank.  B  presents 
the  note  there  at  maturity.  Is  the  bank  authorized  to  pay  it  and  deduct  the 
amount  from  A's  account? 


CHAPTER  XXII 

GUARANTY  AND   SURETYSHIP 

233.  Definitions.  A  surety  is  one  who  makes  an  uncondi- 
tional promise,  in  writing,  to  be  responsible  for  the  debt  of 
another.  A  guarantor  is  one  who  agrees,  in  writing,  that  under 
certain  conditions  he  may  be  held  responsible  for  the  payment  of 
some  debt  or  the  performance  of  some  duty  by  another.  The 
contract  of  a  surety  is  called  a  contract  of  suretyship;  the  contract 
of  a  guarantor  is  called  a  guaranty. 

Degrees  of  Liability.  There  are  in  general  four  degrees 
of  liability  assumed  by  those  who  become  liable  with  or  for 
others.     Named  in  the  order  of  onerous  liability  they  are: 


1. 

Co-Maker. 

2. 
3. 

4. 

Surety. 

Guarantor 

Indorser. 

{a.    For  Payment. 
\b.    For  Collection. 

I 

234.  In  "Writing.     Contracts    of    guaranty    or    suretyship, 

being  contracts  to  answer  for  the  debt,  default,  or  miscarriage  of 
another,  come  under  the  Statute  of  Frauds  and  must  be  in  writ- 
ing. The  writing  may  be  on  the  original  instrument  of  debt  or 
obligation,  or  may  be  on  a  separate  paper. 

235.  Consideration.  If  a  contract  of  guaranty  or  surety- 
ship be  made  at  the  same  time  as  the  original  contract  which  it 
supports,  the  making  of  the  original  contract  is  considered  suffi- 
cient consideration  to  support  the  contract  of  guaranty  or  surety- 
ship. This  is  because  the  performance  of  an  act  which  one  would 
not  otherwise  perform,  is  a  consideration,  and  the  making  of  the 
original  contract  is  such  an  act.  There  need  be  no  other  con- 
sideration. 

But  when  the  contract  of  guaranty  or  suretyship  is  made  sub- 
sequent to  the  original  contract  which  it  seeks  to  support,  there 
must  be  a  separate  consideration,  since  a  past  consideration  will 
not  support  a  new  contract.     This  new  consideration  may  be 

167 


168  GUARANTY   AND   SURETYSHIP 

something  given  to  the  guarantor,  for  instance,  a  payment  of 
money;  or  the  relinquishment  of  a  right  by  the  creditor,  for 
instance,  the  surrender  of  securities  in  his  hands.  Some  states* 
require  that  the  consideration  be  stated  in  the  contract  of  guar- 
anty or  suretyship. 

EXAMPLE 

Solway  owes  Jenkins  $500.  Kasson  writes  to  Jenkins  as  follows:  "I  will 
pay  what  Solway  owes  you,  if  he  does  not,  (Signed)  Kasson."  This  is  a  guar- 
anty of  past  credits  and  unless  some  consideration  passes  between  Jenkint. 
and  Kasson  the  agreement  cannot  be  enforced.  If,  however,  Kasson  writes 
"If  you  will  extend  Solway 's  credit  for  ninety  days,  I  will  pay  you  what  he  now 
owes  you,  if  he  does  not,  (Signed)  Kasson,"  and  this  offer  is  accepted  by 
Jenkins,  there  is  a  sufficient  consideration  to  support  the  promise  of  the 
guarantor. 

236.  The  Contract  of  Surety.  The  surety  usually  signs  the 
original  instrument  with  the  promisor  for  whom  he  becomes 
liable.  He  should  write  the  word  surety  after  his  name,  to 
indicate  the  nature  of  his  liability.  If  he  fails  to  do  this,  he  is  a 
co-maker,  except  as  to  those  who  are  cognizant  of  the  suretyship. 

237.  Liability  of  a  Surety.  It  is  the  duty  of  the  surety  to 
seek  out  the  creditor  at  maturity  and  see  that  the  debt  is  paid. 
Surety  and  principal  are  jointly  and  severally  liable  to  the 
creditor. 

The  surety  is  therefore  liable  as  soon  as  default  is  made,  and 
no  demand  upon  the  principal  debtor  or  notice  of  his  default  is 
necessary.  This  liability  on  the  part  of  a  surety  is  a  continuing 
liability.  Delay  on  the  part  of  the  creditor  to  enforce  collection 
from  the  debtor  will  not  release  the  surety. 

EXAMPLE 

Ames  talks  with  his  banker  about  the  loan  of  $1000.  The  bank  agrees 
to  lend  him  the  money  if  he  will  secure  the  joint  note  of  himself  and  Bates. 
They  sign  such  a  note  and  the  bank  advances  the  money.  Upon  non-payment, 
the  bank  may  sue  both  Ames  and  Bates  jointly,  or  may  sue  Bates  alone. 

238.  The  Contract  of  Guaranty.  A  guarantor  either  signs 
a  paper  separate  from  that  signed  by  his  principal,  or  signs  the 
same  paper  in  such  a  way  as  to  indicate  clearly  that  his  contract 
is  not  one  of  primary  liability. 

*A  statement  of  the  consideration  is  required  in  Alabama,  Georgia, 
Minnesota,  and  New  York  to  validate  a  contract  of  suretyship  or  guaranty. 


< 


GUARANTY   AND   SURETYSHIP  169 

EXAMPLE 
Caldwell  desires  to  secure  credit  from  the  Hub  Clothing  Company  for  a 
suit  of  clothes.  He  takes  with  him  a  letter  from  Murphy  to  that  company 
in  which  Murphy  agrees  that  if  the  company  will  give  Caldwell  credit  up  to 
$75  he  will  pay  it  if  Caldwell  does  not.  If  in  reliance  upon  this  letter  the  Hub 
Clothing  Company  extends  credit  to  Caldwell,  Murphy  becomes  liable  as  a 
guarantor. 

239.  Guarantor's  Liability.  A  guarantor's  liability  is  less 
stringent  than  that  of  a  surety,  or  to  speak  more  exactly,  he  has 
an  opportunity  of  avoidance  that  is  denied  to  the  surety.  The 
guarantor  has  a  right  to  expect  that  demand  for  payment  will  be 
made  upon  the  principal  within  a  reasonable  time  after  maturity, 
and  that  notice  will  then  be  given  to  him  (the  guarantor)  in  case 
of  default.  If  this  be  not  done,  the  guarantor  is  discharged  to  the 
extent  that  he  was  damaged  by  the  delay. 

In  this  respect  the  contract  of  guaranty  is  more  onerous 
than  that  of  indorsement,  for  failure  of  due  presentment  and 
notice  discharges  an  indorser  absolutely,  whether  or  not  he  has 
suffered  by  the  delay. 

It  is  not  always  easy  to  determine  whether  a  sponsor  is  a 
surety  or  a  guarantor.  This  is  more  often  determined  from  the 
nature  of  the  agreement  than  from  any  express  wording  or  form 
used.  If  the  nature  of  the  agreement  is  such  that  sponsor  and 
principal  are  jointly  and  severally  liable,  the  sponsor  is  a  surety. 
If  the  liability  of  the  sponsor  is  secondary  to  that  of  his  principal, 
the  sponsor  is  a  guarantor. 

Contracts  to  answer  for  the  performance  of  the  duties  of 
others  are  always  guaranties,  not  contracts  of  suretyship. 
Fidelity  bonds  are  contracts  of  this  kind. 

240.  Classification  of  Guaranties.  Guaranties  are  variously 
divided,  the  following  being  the  most  common  and  important 
classes : 

.     ^    ^  .        la.    General 

As  to  Operation 


Classes   of 
Guaranties 


b.    Special 

.  r-   t  •  fo'-    For  Payment 

As  to  Subject-matter  <  ,      „      „  ,, 

[b.    For  Collection 

a.  Limited 

b.  Unlimited 

a.  Temporary 

b.  Continuing 


As  to  Amount 
As  to  Time 


170  GUARANTY   AND   SURETYSHIP 

A  special  guaranty  is  one  directed  to  a  particular  person. 

A  general  guaranty  is  directed  to  whomsoever  may  accept  the 
offer  made.  Being  in  the  nature  of  a  proposition,  it  must  be 
accepted  before  it  is  binding,  and  the  guarantee  must  notify 
the  guarantor.  This  is  necessary  that  he  may  know  to  whom  he 
is  liable,  and  for  what  amount,  that  he  may  take  proper  steps  to 
protect  himself  against  loss. 

In  case  of  any  guaranty  it  is  safer  to  notify  the  guarantor 
of  its  acceptance. 

General  Guaranty 

Temple,  Tex.,  Sept.  1,  1916. 
To  any  one  who  shalt  accept  and  retain  this  letter  of  guaranty,  I  will  guar- 
antee the  payment  of  any  bill  of  goods  which  may  be  sold  the  bearer,  G.  W.  Brown, 
to  an  amount  not  exceeding  four  hundred  dollars.     This  should  be  considered 
for  one  transaction  only.  N.  Y.  BLAIR. 

Special  and  Limited  Guaranty 

Ross  Grove,  III.,  Aug.  16,  1916. 
A.  C.  McClurg  &  Co.,  Chicago,  III. 

Gentlemen:  If  you  will  sell  the  bearer,  James  Allen,  a  bill  of  goods  on 
ninety  days'  credit,  I  will  cheerfully  guarantee  the  payment  thereof  to  an  amount 
not  exceeding  one  thousand  dollars.  JOSEPH  B.  LYONS. 

Guarapty  for  Payment.  A  holder  of  a  negotiable  paper 
writes  on  the  back  thereof: 

For  value  received  I  hereby  guarantee  the  payment  of  the  within  note. 

A. 

This  is  an  absolute  guaranty,  for  the  guarantor  is  liable 
immediately  on  the  default  of  the  debtor.  But  he  is  entitled, 
according  to  the  weight  of  authority,  to  demand  and  notice 
within  a  reasonable  time. 

Guaranty  for  Collection.     If  the  guaranty  be  as  follows : 

For  value  received  I  hereby  guarantee  the  collection  of  the  within  note.     A . 

or 
For  value  received  I  warrant  this  note  good.  A . 

it  is  a  guaranty  for  collection.  The  sponsor  does  not  absolutely 
guarantee  that  the  note  will  be  paid  at  once  without  diligent 
effort  to  collect,  including  suit  if  necessary  or  worth  while,  but 
that  the  debtor  can  be  made  to  pay  it. 


GUARANTY  AND   SURETYSHIP  171 

As  to  Amount.  A  guaranty  may  be  for  a  certain  amount, 
in  which  case  it  is  said  to  be  limited,  or  it  may  be  for  an  unlimited 
amount. 

As  to  Time.  A  guaranty  may  be  either  temporary,  that 
is,  limited  to  a  single  transaction,  or  continuing.  A  continuing 
guaranty  applies  to  successive  transactions.  It  is  often  extremely 
difificult  to  determine  whether  the  contract  be  a  tempo- 
rary or  continuing  one,  and  therefore  it  is  best  to  have  the 
instrument  itself  state  plainly  which  is  intended.  If  it  contains 
such  expressions  as  "from  time  to  time,"  or  "at  any  time,"  or 
"for  any  debt,"  etc.,  it  is  usually  construed  as  a  continuing 
guaranty.  A  continuing  guaranty  will  not  only  cover  bills  up 
to  the  amount  of  the  guaranty,  but  if  they  are  paid  and  others 
bought  it  will  cover  any  balance  due  within  the  limit  named  until 
extinguished. 

Continuing  Guaranty 

Chicago,  III,  July  18,  1916. 
J.   W.  Butler  Paper  Co.,  City. 

Gentlemen:  For  all  goods  that  you  may  sell  E.  P.  Farr,  upon  the  usual 
terms  of  credit,  I  will  for  value  received,  guarantee  the  payment  in  an  amount 
not  exceeding  one  thousand  dollars.  You  are  at  liberty  to  consider  this  letter 
a  Continuing  Guaranty  until  further  notice.  H.  TEMPLETON. 

241.  Rights  of  Surety.  Up  to  the  time  when  the  surety  has 
been  compelled  to  pay,  he  has  the  right  to  bring  suit  in  a  court  of 
equity  to  compel  the  debtor  to  pay.  In  the  absence  of  statutory 
provisions  permitting  it,  however,  he  cannot  bring  such  a  suit  in 
a  court  of  law. 

After  the  surety  has  paid  the  obligation  for  which  he  became 
surety,  he  has  three  separate  rights : 

(1)  The  right  of  indemnity  against  the  principal  debtor. 

(2)  The  right  of  contribution  from  co-sureties. 

(3)  The  right  of  subrogation,  against  the  former  creditor. 

It  is  the  possession  of  these  rights  that  makes  the  liability 
of  the  surety  less  onerous  than  that  of  the  co-maker. 

Indemnity.  This  is  the  right  of  the  surety  who  has  paid  his 
principal's  debt  to  sue  the  principal  in  his  own  name  for  the 
amount  paid,  plus  interest  and  costs. 

Contribution.  If  there  are  two  or  more  co-sureties,  and  one 
pays  the  debt  for  which  both  or  all  became  surety,  the  one  paying 


172  GUARANTY  AND   SURETYSHIP 

the  debt  has  the  right  to  compel  each  of  the  others  to  pay  him 
such  an  amount  that  the  burden  of  the  loss  will  be  distributed 
equally  among  the  co-sureties.  This  is  called  the  right  of 
contribution. 

EXAMPLE 

A,  B,  and  C  jointly  become  surety  for  D.  When  the  debt  is  due  D  fails 
to  pay  it,  and  the  creditor  demands  payment  of  C,  who  pays  it.  C  now  has 
the  right  of  contribution  against  A  and  B  to  compel  them  each  to  pay  one-third. 

Subrogation.  When  a  surety  pays  the  creditor,  the  obliga- 
tion is  not  discharged  as  to  the  debtor.  The  latter  is  just  as 
much  in  debt  as  ever,  but  to  a  different  person.  The  surety 
now  stands  in  the  place  of  the  erstwhile  creditor.  He  has  a  right 
to  insist  on  all  the  securities  which  the  creditor  had,  for  the 
payment  of  the  debt.  If  the  creditor  has  secured  a  judgment 
against  the  debtor,  the  surety  is  now  entitled  to  the  benefits  of 
it.     This  is  called  the  right  of  subrogation. 

Rights  of  Guarantor.  The  four  rights  enumerated  above, 
for  the  surety,  also  belong  to  the  guarantor  under  the  same 
conditions. 

242.  Discharge  of  Surety.  Of  course  a  surety  is  discharged 
from  further  liability  by  paying  the  obligation  for  which  he  be- 
came surety,  but  there  are  a  number  of  conditions  under  which 
he  may  be  discharged  without  payment.  The  most  important 
are: 

I.     Fraud  practiced  on  the  surety. 
II.     Diversion  from  the  agreed  purpose. 

III.  Alteration. 

IV.  Release. 

V.     Extending  time  to  principal. 
VI.     Parting  with  security. 

Fraud  P>racticed  on  the  Surety.  WTien  one  is  induced  to 
become  a  surety,  or,  for  that  matter,  a  drawer  or  endorser,  for 
another,  and  there  is  a  misrepresentation  or  concealment  of  a 
material  fact,  which  if  known  to  him  would  have  prevented  his 
entering  upon  the  contract,  it  is  void  as  to  all  parties  having 
knowledge  of  the  fraud. 


GUARANTY  AND  SURETYSHIP  I73 

EXAMPLE 

A,  securing  a  position  of  trust  with  a  corporation,  induced  B  to  go  on  his 
bond  for  the  faithful  performance  of  his  duties  for  one  year.  During  the  year 
A  was  found  to  have  embezzled,  but  nothing  was  done  about  it,  and  the  com- 
pany, relying  on  his  promise  to  make  it  good,  took  his  note.  The  next  year  B, 
in  ignorance  of  A's  former  misdeeds,  again  became  his  surety.  In  a  short 
time  A  was  again  an  embezzler,  when  the  company  notified  B  of  their  intention 
to  hold  him  responsible  on  his  bond.  B  was  not  liable,  for  he  had  been 
imposed  on.  The  concealment  practiced  by  the  corporation  was  a  fraud  on 
the  surety. 

Diversion.  When  a  bill  is  drawn  or  accepted,  or  a  note  made 
or  endorsed  for  accommodation,  with  an  agreement  that  it  is  to 
be  used  for  a  particular  purpose,  any  diversion  in  its  use  dis- 
charges the  accommodation  party  as  to  all  who  have  notice  of  the 
diversion.  Any  one  taking  such  a  paper  with  a  knowledge  of  its 
diversion,  is  not  a  bona  fide  holder. 

Alteration.  Any  alteration  in  the  original  contract  which  will 
release  the  principal  will  also  release  the  surety.  Any  alteration 
in  the  contract  of  guaranty  which  would  make  any  other  contract 
void  will  make  void  the  contract  of  guaranty. 

Extending  Time  to  Principal.  The  creditor  should  preserve 
his  right  against  the  debtor  intact,  not  for  himself  alone,  but  for 
the  benefit  of  the  surety  as  well.  When  he  relaxes  his  hold  upon 
the  debtor,  he  impairs  the  hold  the  surety  would  have  when 
substituted  (subrogated)  in  his  place,  and  such  an  act  releases 
the  surety. 

If  the  creditor  makes  a  new  contract  with  the  debtor,  extend- 
ing his  time,  the  surety  is  released.  It  does  not  follow,  however, 
that  mere  forbearance  to  sue  releases  the  surety,  for  if  the  right 
to  sue  has  not  been  relinquished  by  a  binding  contract,  the  surety 
is  not  deprived  of  any  of  his  rights.  If  the  creditor  wishes  to 
extend  the  debtor's  time,  he  should  first  obtain  the  surety's 

assent. 

EXAMPLES 

1.  Callahan  has  guaranteed  that  Bell  will  pay  a  bill  owing  to  Jordan 
which  is  due  in  thirty  days.  Jordan,  without  securing  Callahan's  consent, 
and  for  a  consideration,  extends  the  time  of  payment  to  ninety  days.  This 
releases  Callahan. 

2.  Morgan  is  the  guarantor  of  an  obligation  owing  from  Green  to  Lum- 
ley.  The  obligation  becomes  due  and  Lumley  delays  bringing  suit  against 
Green  for  three  months.     This  does  not  discharge  Morgan. 


174  GUARANTY   AND   SURETYSHIP 

Parting  with  Securities.  Upon  the  payment  of  the  debt,  the 
surety  is  entitled  to  all  the  rights,  remedies,  and  securities  which 
the  creditor  could  have  enforced.  The  creditor  must,  therefore, 
use  every  care  that  he  do  nothing  to  impair  the  surety's  rights. 
He  must  not  part  with  any  securities  he  may  have  belonging  to 
the  debtor,  and  if  he  does  so,  the  surety  is  released  to  the  extent 
that  he  is  damaged  thereby.  This  has  been  held  true  even  when 
the  surety  did  not  know  of  the  existence  of  the  security  at  the 
time  of  its  release. 

243.  Discharge  of  Guarantor.  A  guarantor  is  discharged  by 
any  act  of  the  creditor  that  would  discharge  a  surety.  All  that 
has  been  said  in  this  connection  in  regard  to  sureties  applies 
equally  to  guarantors.  In  addition,  however,  a  guarantor  may 
be  discharged  by  failure  to  make  demand,  or  by  lack  of  notice. 
It  would  perhaps  be  speaking  more  accurately  to  say  that  his 
liability  in  this  case  had  never  been  perfected. 

244.  Miscellaneous  Matters — Indorsers  and  drawers  and 
guarantors  may  become  sureties.  Those  who  make  themselves 
liable  for  the  debts,  defaults,  or  miscarriages  of  others  become 
fully  liable  as  soon  as  conditions  precedent  to  their  liability 
fasten  this  liability  upon  them.  The  distinction  between  them, 
then,  is  not  one  of  degree  of  liability;  but  of  greater  or  less  oppor- 
tunity for  the  avoidance  of  the  liability.  The  indorser  is 
discharged  absolutely  if  presentment  is  not  properly  made  and 
notice  promptly  given,  but  if  these  things  are  properly  attended 
to,  his  responsibility  at  once  becomes  as  great  as  that  of  the 
surety.  Similarly,  the  guarantor  has  a  loophole  for  the  avoid- 
ance of  liability  that  is  denied  the  surety,  but  if  the  creditor 
properly  attends  to  those  matters  necessary  to  fix  liability  upon 
the  guarantor,  including  an  unsuccessful  attempt  to  collect,  then 
the  liability  of  the  guarantor  is  as  great  as  that  of  the  surety. 

Death  of  a  Joint  Guarantor.  By  the  common  law,  the  death 
of  a  joint  guarantor  releases  his  estate  from  obligation  as  guar- 
antor.    This  rule  has  been  changed  by  statute  in  some  States. 

Guaranty  Not  Negotiable.  In  many  States  guaranties  are 
held  to  be  non-negotiable.  It  would  seem  prudent,  therefore, 
to  rely  but  little  on  an  assigned  guaranty. 


GUARANTY   AND   SURETYSHIP  175 

EXAMPLE 

B  held  A's  note,  which  he  sold  to  C,  writing  under  his  blank  endorsement 
the  words,  "I  guarantee  the  payment  of  this  note.  B."  A  subsequent  holder 
of  the  note  sued  B  on  this  guaranty,  but  the  court  held  that  the  guaranty  was 
personal  to  C. 

The  guarantor  can  always  make  sure  that  his  guaranty  is 
personal  to  the  one  to  whom  given  by  adding  to  it  the  words, 
"This  guaranty  is  non-assignable." 

Guaranty  Valid  Though  Principal  Debt   Not    Enforceable. 

Sometimes  a  guaranty  or  surety  is  requested  because  the  prin- 
cipal debt  is  not  enforceable,  as  when  a  minor  asks  for  credit, 
which  is  granted  if  security  be  given.  In  such  cases  the  guar- 
antor or  surety  is  liable  even  though  the  principal  debtor  is  not. 

Promises  to  Pay  One's  Own  Debt.  A  guaranty  to  pay  one's 
own  debt  need  not  be  in  writing.  If  A  induces  B  tci  give  an  ac- 
commodation note  for  A's  debt  to  C,  A's  guaranty  of  the  note  is 
valid  even  though  verbal. 

If  A  orders  goods  to  be  delivered  to  B,  saying  to  the  merchant, 
"Charge  them  to  me,"  or  "I  will  pay  for  them,"  it  is  A's  own  debt 
and  the  promise  to  pay  need  not  be  in  writing.  If  he  says, 
"If  B  does  not  pay,  I  will,"  it  is  a  guaranty  and  is  not  valid  unless 
in  writing. 

Failure  to  Receive  Notice  of  Acceptance  or  Default.  While 
the  better  course  is  for  a  creditor  to  give  immediate  notice  of  the 
acceptance  of  an  ofifer  of  guaranty,  many  states  adopt  the  view 
that  there  is  a  sufficient  acceptance  if  the  creditor  advances 
money  or  goods  to  the  principal  debtor  in  reliance  upon  the 
contract  of  guaranty.  In  more  than  half  of  the  states,  however, 
the  rule  followed  is  the  so-called  Massachusetts  rule,  which 
declares  that  the  guarantor  is  not  bound  until  he  has  had  notice 
of  the  extension  of  credit. 

Revocation  by  Surety  or  Guarantor.  A  notice  of  revocation 
of  the  agreement  of  guaranty  is  effective  if  it  is  given  to  the 
creditor  before  he  has  made  advances  in  reliance  upon  it.  But 
if  he  has  already  acted  upon  the  offer  the  guarantor  cannot 
escape  liability  by  revoking  the  contract.  After  notice  of  revo- 
cation of  a  continuing  guaranty  has  been  received  the  creditor 
can  hold  the  guarantor  only  as  to  past  advances. 


176  GUARANTY   AND   SURETYSHIP 

PRACTICAL   SUGGESTIONS 

If  You  Are  a  Surety  or  Guarantor.  Protect  yourself  by  limiting  the 
agreement  of  suretyship  as  much  as  possible.  ^  Require  notice  of  acceptance 
and  default  within  a  reasonable  time,  and  limit  your  liability  to  a  maximum 
amount.  Otherwise,  you  will  assume  a  much  greater  liability  than  you  would 
as  a  partner. 

Never  sign  an  agreement  of  suretyship  without  carefully  investigating 
the  p)erson  whom  you  are  guaranteeing.  Make  a  specific  request  for  informa- 
tion from  the  creditor.  Never  become  surety  for  a  man  with  whom  you  would 
hesitate  to  enter  into  a  partnership  agreement. 

If  You  Are  a  Creditor  Relying  on  an  Agreement  of  Suretyship  or  Guaranty. 
Require  that  the  agreement  be  in  writing  and  signed  by  the  surety.  Also 
require  that  it  state  the  consideration.  Be  careful  to  conform  to  all  the 
requirements  of  the  agreement,  and  to  protect  yourself  against  all  possible 
question  give  notice  within  a  reasonable  time  of  acceptance  and  of  any  default 
of  the  principal.  Disclose  all  material  facts  to  the  surety  regarding  the  prin- 
cipal. Do  not  alter  the  agreement,  or  vary  its  terms,  or  surrender  any  secur- 
ities in  your  hands  to  the  principal,  without  the  consent  of  the  surety. 

The  court  will  never  enlarge  the  liability  of  the  guarantor  or  surety,  by 
construction.  Contracts  of  guaranty  and  suretyship  are  always  construed 
strictly  according  to  their  wording. 

REVIEW    QUESTIONS 

1.  A  went  into  B's  clothing  store  with  C  and  said  to  B,  "You  fit  C  out 
with  a  suit  of  clothes  and  I  will  pay  for  them."  B  furnished  C  a  suit  and  sent 
the  bill  to  A,  who  ignored  it.  B  thereupon  sued  A,  who  defended  the  action 
on  the  ground  that  his  promise  was  not  in  writing.  May  B  recover  against  A? 
Why? 

2.  Jones  owes  Smith  $100,  Brown  owing  Jones  a  similar  amount.  Brown 
promises  to  pay  Smith  $100  for  Jones  if  Jones  will  release  him  (Brown)  from 
his  debt  of  $100,  and  this  is  agreed  to  by  Jones.  What,  if  any,  defense  would 
Brown  have  to  a  suit  by  Smith  against  him  for  $100? 

3.  Steele  and  Newson  both  signed  a  promissory  note,  on  which  money 
was  to  be  loaned  by  Wood  to  Newson,  Steele  signing  as  a  surety.  Newson 
later,  with  the  knowledge  of  Wood,  altered  the  date  from  September  11  to 
October  11  and  delivered  it  to  Wood.  It  being  unpaid,  Wood  sued  Steele, 
who  claimed  that  these  acts  had  served  to  discharge  him.  May  Wood  recover 
against  Steele?     Why? 

4.  Jones,  an  employe  of  Railton,  requested  Matthews  to  execute  a  bond 
for  the  performance  of  his  duties  as  Railton's  cashier.  Matthews  made 
inquiries  regarding  Jones,  and  was  informed  by  Railton  that  Jones  was  con- 
sidered a  reliable  man.     As  a  matter  of  fact  Jones  had  ten  years  previously 


GUARANTY   AND   SURETYSHIP  177 

embezzled  $560  of  his  employer's  money,  but  had  repaid  the  amount  and  had 
been  guilty  of  no  misconduct  since  that  time.  Railton  failed  to  inform 
Matthews  of  any  of  these  facts.  Matthews  executed  a  surety  bond  to  Railton 
for  Jones'  fidelity.  Two  mo/iths  later  Jones  absconded  with  $10,000  and" 
Railton  sued  Matthews  on  the  bond.     May  he  recover?     Why.-* 

5.  Ames,  a  surety  on  a  note  that  was  due  and  unpaid,  was  sued.  His 
defense  was  that  the  maker  of  a  note  was  an  infant.     Was  Ames  liable? 

6.  The  Fidelity  Bond  Company  gave  a  cash  bond  of  $10,000  to  the  State 
of  Wyoming  for  the  faithful  performance  of  contract  by  the  National  Bridge 
Co.  The  bridge  contracted  for  collapsed  a  week  before  the  date  when  it  was 
to  have  been  completed.  Two  weeks  later  the  officers  of  the  National  Bridge 
Co.  left  the  country  for  parts  unknown,  after  realizing  all  they  could  from  the 
assets  of  the  company.  The  State  then  notified  the  Fidelity  Bond  Company 
that  its  bond  was  forfeited.     What  rights  had  the  bond  company?     Why? 


1.   Essentials 


CHAPTER   XXIII 
SALES   OF   PERSONAL   PROPERTY 

The  Contract  of  Sale 

1.  Competent  parties 

2.  Mutual  assent 

3.  Consideration 

4.  Legal  subject  matter 

5.  Conformity  to  Statute  of 
Frauds 


ri 


II.  Transfer 
of  Titled 


Between   ja.  Ascertained  goods 
buyer  and  <b.  Unascertained 
seller    (    goods 
As  to  third  fa.  Subsequent 
parties    <    purchasers 
[b.  Creditors 
By  conditional  sale 

4.  By  chattel  mortgage 

5.  By  docu-   fa.  Straight  receipts 
ments  of  <b.  Negotiable 
title     [    receipts 


III.  Warranties^ 


[1 .  Express 
[2.  Implied 


/a.  Title 
\b.  Quality 


ri 


IV.  Remedies- 


Of 

seller- 


a.  Primary<^' 


Collection 
Damages 


b.  Secondary- 


a.  Lien 

b.  Stoppage 
in  transit 

c.  Resale 

d.  Recis- 

sion 


Of   fa.  For  breach  of  contract 
buyer < 

[h.   For  breach  of  warranty 

178 


SALES  OF   PERSONAL   PROPERTY  179 

245.  Introduction.  The  ownership  of  personal  property- 
would  be  of  little  value  to  the  business  man  unless  he  also  had 
the  right  to  transfer  it  to  others.  The  transfer  of  property  in 
goods  forms  the  basis  of  the  majority  of  the  transactions  of  com- 
merce. The  law  applicable  to  such  transfer  is  called  the  Law  of 
Sales  of  Personal  Property,  or  of  Goods. 

There  are  three  phases  of  the  Law  of  Sales  which  must  be 
understood  by  a  business  man  who  seeks  to  transfer  his  property 
in  goods  to  another  intelligently.     These  are : 

L  Manner  and  time  of  effecting  a  transfer  of  title  to  per- 
sonal property  from  buyer  to  seller. 

2.  The  express  and  implied  warranties  incident  to  a  contract 
of  sale. 

3.  The  respective  remedies  of  the  buyer  and  seller. 

These  three  points,  viz.,  transfer  of  title,  warranties,  and 
remedies,  are  separately  discussed  in  Chapters  XXIV-XXVIL 

Sales  and  Contracts  to  Sell.  A  contract  to  sell  is  one  in 
which  the  seller  agrees  to  transfer  the  property  in  goods  to  the 
buyer  at  some  other  time  for  a  consideration  called  the  price. 
When  the  seller  has  transferred  the  property  in  the  goods  to 
the  buyer,  the  transaction  is  called  a  sale.  Prior  to  the  transfer 
it  is  merely  a  contract  to  sell. 

EXAMPLES 

1.  A,  a  coal  dealer,  says  to  B,  "I  will  sell  you  your  next  year's  coal  supply 
for  $8  a  ton,  if  you  will  agree  to  buy  fifteen  tons."  B  says,  "I  accept  that  offer." 
This  is  a  contract  to  sell.  B  acquires  the  right  to  demand  the  transfer  of 
fifteen  tons  of  coal  at  a  future  date.  Meanwhile  A  bears  the  risk  of  loss  and 
the  coal  is  subject  to  levy  and  execution  for  his  debts. 

2.  C  goes  to  D's  grocery  store,  asks  for  a  bag  of  flour,  receives  it  and 
pays  the  price.  This  is  a  sale,  because  the  property  in  the  goods  is  transferred. 
If  D  should  become  a  bankrupt  his  creditors  could  not  reclaim  the  bag  of  flour 
from  C. 

246.  Essential  Elements  of  Contract  to  Sell.  A  contract  to 
sell  goods  must  possess  every  element  essential  to  the  validity  of 
a  simple  contract.  It  must  be  made  between  competent  parties, 
must  by  its  terms  evidence  a  mutual  assent,  must  be  made  for  a 
valuable  consideration,  and  must  concern  a  legal  subject  matter. 
Furthermore,  it  must  comply  with  the  Statute  of  Frauds. 


180  SALES  OF  PERSONAL  PROPERTY 

In  a  contract  to  sell  goods  the  parties  are  the  seller  and  the 
buyer;  the  consideration  is  the  price  which  the  buyer  agrees 
to  pay ;  and  the  transfer  of  the  ownership  in  the  goods  which  the 
seller  agrees  to  sell  forms  the  subject  matter  of  the  sale. 

247.  Who  May  Sell.  Only  the  true  owner  of  goods  or  his 
legal  agent  may  sell  them  so  as  to  transfer  a  valid  title  to  the 
buyer.  Herein  is  the  difference  between  the  transfer  of  title  to 
negotiable  instruments  and  the  transfer  of  title  to  other  articles 
of  personal  property.  While  the  thief  or  finder  of  a  negotiable 
instrument  which  is  payable,  on  its  face  or  by  indorsement,  to 
bearer,  or  the  thief  or  finder  of  money,  may  transfer  it  to  a  holder 
in  due  course  so  as  to  give  him  a  title  valid  against  the  whole 
world,  and  even  against  the  person  from  whom  it  has  been  stolen 
or  who  has  lost  it,  the  thief  or  finder  of  other  personal  property 
can  transfer  no  title,  because  he  has  none  himself.  The  true 
owner  may  reclaim  it  even  from  an  innocent  purchaser  who  has 
paid  value.  A  person,  therefore,  however  innocent,  who  buys 
goods  from  one  not  the  owner,  obtains  no  property  in  them  as 
against  the  true  owner;  nor  does  anyone  to  whom  he  ever  sells 
them  obtain  good  title  as  against  the  true  owner. 

EXAMPLE 
Soltau  sued  Gerdau  to  recover  a  quantity  of  rubber.  In  the  trial  of  the 
case  it  was  shown  that  Gerdau  had  bought  the  rubber  from  Smith,  a  broker 
in  Boston,  who  had  acquired  it  from  Soltau  under  circumstances  which  the 
court  held  amounted  to  theft.  Therefore  Soltau,  as  the  true  owner,  was 
allowed  to  recover  the  rubber  from  Gerdau.     Soltau  vs.  Gerdau,  119  N.Y.  380. 

248.  The  Thing  Sold.  Strictly  speaking,  a  person  cannot 
sell  goods  which  he  does  not  own.  He  may  contract  to  sell  them, 
but  he  cannot  sell  them. 

When  one  contracts  to  sell  that  which  he  does  not  own  at 
the  time,  the  contract  is  for  the  sale  of  "future  goods."  Any 
attempt  to  sell  such  "future  goods"  has  the  effect  only  of  a 
contract  to  sell,  and  has  not  the  effect  of  a  present  sale.  Even 
if  the  seller  in  such  a  case  should  attempt  to  make  the  sale  as 
a  present  owner,  such  an  attempt  has  no  effect,  as  the  title 
remains  with  the  true  owner.  It  does  have  the  effect,  however, 
of  making  the  supposed  seller  liable  to  the  supposed  buyer  as 
on  an  executory  contract,  giving  the  buyer  the  right  to  exact 
performance  or  collect  damages. 


SALES  OF   PERSONAL   PROPERTY  181 

As  a  general  rule,  one  cannot  own  that  which  is  not  in  exist- 
ence, and,  therefore,  things  not  in  existence  cannot  be  the  subject 
of  a  present  sale.  An  exception  to  this  general  rule  is  made  in 
the  case  of  growing  products.  Things  which  are  the  natural 
product  or  expected  increase  of  things  in  existence  have  a 
potential  existence,  and  if  they  are  the  product  of  things  already 
belonging  to  the  seller,  they  may  be  the  subject  of  a  present  sale. 
This  exception  is  recognized  in  most  of  the  United  States,  as 
applied  to  the  future  crops  from  the  seller's  land,  the  future 
offspring  of  or  products  from  the  seller's  animals,  or  wages  to  be 
earned  under  an  existing  contract.  The  only  goods  which  are 
deemed  to  have  a  potential  existence  are  growing  crops  and  the 
unborn  off-spring  of  animals.  The  Uniform  Sales  Act,*  however, 
does  not  recognize  the  distinction  and  declares  that  all  sales  of 
future  goods  are  merely  contracts  to  sell  and  not  sales. 

In  most  States  this  exception  will  not  be  applied  to  crops  not  planted,  or 
until  the  potential  existence  is  actually  begun  in  nature. 

EXAMPLES 

1.  Fletcher  contracts  in  April  that  he  will  sell  to  Murphy  in  September 
twenty  bushels  of  tomatoes  which  he  expects  to  grow  on  his  vines.  This  is  a 
contract  to  sell  only,  and  Murphy  possesses  no  property  rights  in  any  tomatoes 
until  the  contract  is  performed,  and  twenty  bushels  of  tomatoes  actually 
delivered. 

2.  Fletcher  in  July  makes  a  present  sale  of  thirty  bushels  of  his  growing 
tomatoes  to  Hatton,  although  the  tomatoes  are  not  yet  ripe  and  both  parties 
understand  that  the  tomatoes  are  to  be  ripened  on  the  vines.  The  property 
in  the  tomatoes  is  transferred  to  Hatton  at  once.  His  creditors  may  seize 
the  tomatoes  by  an  execution  and  levy.  Fletcher  has  no  title  in  them,  and 
should  he  attempt  to  sell  them  to  Jones,  Hatton  can  reclaim  them  from  Jones. 

249.  The  Price.  It  is  not  necessary  that  the  price  be  in 
money.  It  may  be  in  other  forms  of  personal  property,  and  the 
character  of  the  transaction  will  remain  unchanged. 


*  The  Uniform  Sales  Act  is  a  compilation  of  the  laws  regarding  Sales  of 
Goods,  similar  to  the  Negotiable  Instruments  Act,  which  has  been  recom- 
mended to  the  various  states  for  adoption.  It  has  not  been  generally  adopted 
as  yet,  being  in  force  only  in  Arizona,  New  Jersey,  Connecticut,  Massachusetts, 
Rhode  Island,  Ohio,  and  Wisconsin.  The  change  in  regard  to  the  former  doc- 
trine of  potential  existence  is  one  of  the  few  changes  in  the  existing  law  made 
bv  the  uniform  act. 


182  SALES  OF   PERSONAL   PROPERTY 

EXAMPLE 
Marcy  agrees  to  sell  Hines  an  automobile  for  1000  bushels  of  potatoes  or 
twenty  tons  of  brick,  as  Hines  may  prefer.  This  is  a  contract  for  the  sale  of 
goods.  If,  however,  the  agreement  had  been  to  sell  the  automobile  for  an 
acre  of  land,  the  agreement  would  be  governed  by  the  laws  relating  to  sales  of 
real  estate. 

It  is  also  unnecessary  that  the  price  should  be  specified, 
whether  it  be  in  money  or  in  other  personal  property.  The 
amount  may  be  left  for  future  determination,  provided  a  way  of 
determining  it  is  agreed  upon  or  understood,  or  may  be  deter- 
mined by  the  previous  course  of  dealings  between  the  parties,  or, 
if  neither  of  these  alternatives  applies,  the  buyer  must  pay  the 
reasonable  value  of  the  goods. 

McConnell  sold  to  Hughes  850  bushels  of  wheat  at  an  agreed  price 
of  ten  cents  per  bushel  less  than  the  Milwaukee  price  at  any  day  thereafter 
which  McConnell  might  select.  McConnell  delivered  the  wheat  and  notified 
Hughes  that  he  selected  March  24  as  the  day  for  determining  the  price.  The 
Milwaukee  market  on  that  day  was  seventy-two  cents  a  bushel,  and  this 
determined  the  price.     McConnell  vs.  Hughes,  29  Wis.  537. 

It  is  also  possible  for  the  buyer  and  seller  to  agree  that  the 
price  shall  be  fixed  at  a  future  date  by  a  third  person.  This 
is  called  a  sale  at  a  vahiation.  If  the  transaction  be  merely  a  con- 
tract to  sell  and  the  property  in  the  goods  has  not  been  trans- 
ferred, death  or  other  circumstances  making  it  impossible  for  the 
third  person  to  fix  the  price  avoids  the  contract.  On  the  other 
hand,  if  the  transaction  be  a  sale  and  the  buyer  has  received  the 
goods,  he  must  pay  the  reasonable  value  as  the  price,  should  the 
third  person  fail  to  specify  it.  If  the  third  person  is  prevented 
from  naming  a  price  by  the  fault  of  either  the  buyer  or  seller, 
special  remedies  are  provided.     (See  Chapter  XXVIII.) 

EXAMPLE 

Johnson  sells  a  horse  to  Brewer,  the  price  to  be  fixed  by  Gordon  after  an 
examination  of  the  horse.  Before  fixing  the  price,  Gordon  dies.  If  the  horse 
has  been  delivered,  Johnson  may  claim  its  reasonable  value  from  Brewer;  if 
the  horse  has  not  been  delivered  the  transaction  is  terminated  without  the 
fault  of  either  party,  because  of  impossibility  of  performance. 

If  Gordon  had  fraudulently  named  an  excessive  price,  or  had  been  wrong- 
fully influenced  in  naming  the  price  by  either  of  the  parties,  to  the  damage  of 
the  other,  appeal  could  be  made  to  the  courts,  which  would  then  determine 
the  reasonable  value.     Wendt  vs.  \"ogel,  87  Wis.  462. 


SALES   OF   PERSONAL   PROPERTY  183 

REVIEW    QUESTIONS 

L  Evans,  a  farmer,  sells  to  Barker,  in  the  spring,  the  hay  and  corn  that 
Evans  will  raise  on  his  farm  during  the  coming  season.  The  corn  has  not  yet 
been  planted.  He  also  sells  to  Barker  the  wool  from  100  sheep,  which  he  agrees 
to  buy  within  thirty  days,  but  which  he  does  not  yet  own.  In  November, 
while  he  has  the  hay,  corn,  and  wool  in  his  possession,  Evans'  barn  is  destroyed 
by  fire.     Who  suffers  the  loss  as  to  each  commodity?     Why? 

2.  Hagins  contracted  to  sell  groceries  to  Combs  and  to  take  in  exchange 
logs,  and  allow  for  the  logs  the  most  that  the  "seller  could  get  offered  in  money 
for  them,  delivered  at  Oshkosh,  when  measured."  Hagins  delivered  the  gro- 
ceries, and  when  Combs  sought  to  pay  him  in  logs,  a  dispute  arose  as  to  the 
number  of  logs  which  would  satisfy  Hagins'  claim.  What  is  the  proper  rule 
for  determining  the  number?     Is  this  a  contract  to  sell  goods?     What  goods? 

3.  Rodliff  shipped  some  wool  to  Clementson,  a  wool  broker,  relying  on 
his  statement  that  he  had  a  customer  who  would  take  the  wool  at  once  and 
pay  cash,  which  he  would  remit  to  Rodliff.  Instead  of  this,  Clementson 
turned  the  wool  over  to  Dallinger  in  payment  of  a  debt  which  he  owed  Dal- 
linger.  What  rights,  if  any,  did  Rodliff  have  against  Dallinger?  against 
Clementson?     Why? 

4.  Corbett  sold  ten  cords  of  wood  to  Moody,  the  wood  to  be  inspected 
and  valued  by  Jenner.  After  the  wood  had  been  delivered  Moody  paid  Jenner 
$10  to  place  a  low  valuation  on  the  wood,  which  he  accordingly  did,  valuing 
it  at  $3  a  cord.  What  rights,  if  any,  has  Corbett?  How  much  may  he  recover 
for  the  wood? 

5.  Suppose  that  in  the  above  example  Jenner  had  departed  for  Europe 
before  valuing  the  wood  and  remained  away  for  ten  years.  What  would 
the  rights  of  the  parties  be  (1)  if  the  wood  has  been  delivered;  (2)  if  the  wood 
hdd  not  been  delivered? 


CHAPTER  XXIV 
FORM   OF   CONTRACT   OF   SALE 

250.  Statute  of  Frauds.  This  statute  was  designed  to 
make  fraud  difficult  in  important  contracts.  One  of  its  pro- 
visions is  that  if  a  transaction  involves  a  sale  of  goods  of  consider- 
able value  it  is  not  enforceable  unless  evidenced  by  writing,  or 
unless  it  shall  have  been  partly  performed,  either  by  the  delivery 
of  some  of  the  goods  or  the  payment  of  a  part  of  the  price. 

Some  states  in  the  United  States  have  changed  the  limit 
of  value  in  adopting  this  provision;  others  have  not  adopted  it 
in  any  form.  In  the  latter  states  it  is  not  necessary  that  any 
contracts  for  the  sale  of  goods  be  in  writing  to  make  them 
enforceable.  The  rules  regarding  the  various  states  are  listed 
in  the  foot-note  to  Section  118. 

Some  explanation  of  the  terms  of  the  provision  is  required. 

251.  Goods,  Wares,  and  Merchandise.  The  requirements 
of  this  provision  apply  only  to  contracts  for  sale  of  goods,  wares, 
and  merchandise.  They  do  not  apply  to  contracts  for  the  sale  of 
work,  labor,  and  materials.  The  contract  of  a  shop-keeper  to 
sell  ordinary  articles  of  commerce,  such  as  potatoes,  clothes-line, 
or  needles,  is  a  contract  to  sell  goods,  and  if  the  value  of  the  goods 
be  more  than  fifty  dollars  (or  whatever  limit  the  particular  state 
may  have  adopted)  it  must,  if  executory,  be  in  writing  or  it  will 
not  be  enforced.  The  contract  of  a  noted  sculptor,  however,  to 
make  a  statue  of  a  particular  person,  is  not  a  contract  for  the  sale 
of  goods,  wares,  and  merchandise,  but  is  a  contract  for  work, 
labor,  and  materials,  and  will  be  enforced  regardless  of  its  form. 
Whether  the  contract  belongs  to  the  first  or  second  class  depends 
on  the  nature  of  the  thing  to  be  furnished.  A  contract  for  the 
sale  of  existing  articles,  or  such  articles  as  the  seller  manufac- 
tures in  the  ordinary  course  of  his  business  for  the  general  market, 
whether  on  hand  at  the  time  or  not,  is  a  contract  for  the  sale  of 
goods,  wares,  and  merchandise,  and  the  statute  applies.  On  the 
other  hand,  if  the  goods  are  to  be  manufactured  especially  for 

184 


.     FORM   OF   CONTRACT  OF   SALE  185 

the  particular  buyer  and  upon  his  special  order,  not  for  the 
general  market,  the  contract  is  for  work,  labor,  and  materials 
and  need  not  be  in  waiting. 

EXAMPLES 

1.  Garbutt,  a  miller,  entered  into  a  contract  with  Watson  to  sell  him  100 
sacks  of  flour  to  be  ground  from  grain.  No  part  was  then  delivered,  no  pay- 
ment made,  and  no  writing  executed.  When  the  flour  was  ground  Watson 
refused  to  receive  it,  claiming  that  the  contract  was  not  enforceable  because 
the  price  was  more  than  $50.  This  was  justifiable,  because  Garbutt  ground 
the  flour  in  the  ordinary  course  of  his  business  for  the  general  market,  and 
the  contract  was  for  the  sale  of  goods,  wares,  and  merchandise.  Garbutt 
vs.  Watson,  5  B.  &  A.  (Eng.)  613. 

2.  Clay  entered  into  an  agreement  to  print  a  book  for  Yates,  for  which 
Yates  had  written  the  preface.  When  the  book  was  completed  Yates  refused 
to  receive  it  on  the  ground  that  the  price  was  in  excess  of  fifty  dollars  and  the 
contract  did  not  conform  to  the  provisions  of  the  Statute  of  Frauds.  This 
was  not  justifiable,  because  this  particular  book  was  not  suitable  for  the 
general  market,  and  the  contract  was  for  the  sale  of  work,  labor,  and  materials, 
so  that  the  Statute  of  Frauds  did  not  apply.    Clay  vs. Yates,  1  H.&  N;  (Eng.)73. 

252.  Growing  Crops  and  Standing  Timber.  Timber  is  real 
estate  until  it  has  been  cut.  A  contract  to  sell  growing  timber 
is  not  a  contract  for  the  sale  of  goods,  but  a  contract  for  the  sale 
of  real  estate.  To  such  the  Seventeenth  Section  of  the  Statute  of 
Frauds  does  not  apply,  but  contracts  for  the  sale  of  standing 
timber  must  nevertheless  be  in  writing,  regardless  of  value, 
because  the  Fourth  Section  of  the  English  Statute  of  Frauds, 
everywhere  adopted  in  the  United  States,  requires  all  contracts 
for  the  sale  of  land,  or  any  interest  in  land,  to  be  in  writing.  The 
result  is  that  if  there  be  a  sale  of  uncut  standing  timber  the  con- 
tract will  not  be  enforceable  unless  in  writing;  but  if  the  timber 
has  been  cut,  the  agreement  need  be  in  writing  only  if  the  price 
is  in  excess  of  the  statutory  value,  and  if  no  timber  has  been 
deli\-€red  or  part  payment  received,  because  cut  timber  is  personal 
property. 

On  the  other  hand,  whether  growing  crops  are  personal 
property  or  real  estate  depends  upon  the  nature  of  the  crops,  and 
not  upon  whether  they  have  been  cut.  Crops  which  are  depend- 
ent for  their  growth  upon  cultivation  by  the  hand  of  man  may 
be  sold  before  they  are  harvested,  or  severed  from  the  soil,  as 
personal  property.  They  are  goods,  wares,  and  merchandise, 
and  contracts  for  their  sale  need  not  be  written  if  the  value  is  less 


186  FORM   OF   CONTRACT  OF  SALE 

than  the  statutory  amount.  But  if  the  crops  grow  naturally 
without  cultivation  by  man,  they  are  treated  as  real  estate  until 
actually  severed  from  the  soil,  and  sales  of  th^m  must  conform 
to  the  provisions  regarding  sales  of  interests  in  land. 

EXAMPLES 

1.  Armstrong  entered  into  a  verbal  contract  with  Green  to  sell  to  Green 
the  trees  growing  on  his  land,  giving  Green  the  right  to  cut  and  remove  them 
within  twenty  years.  Green  cut  a  part  of  the  trees,  paying  for  the  ones 
removed,  but  Armstrong  refused  to  allow  him  to  remove  the  remainder, 
claiming  the  contract  to  be  unenforceable  because  it  was  for  a  sale  of  an  interest 
in  land  and  was  not  in  writing.  Green  claimed  that  the  contract  was  for  the 
sale  of  goods,  wares,  and  merchandise,  and  that  although  more  than  $50  in 
value,  he  had  received  and  accepted  part  of  the  goods.  The  contract  was  for 
the  sale  of  an  interest  in  land  and  not  enforceable.  Green  vs.  Armstrong, 
1  Denio  (N.  Y.)  552. 

2.  Parker  sold  a  crop  of  potatoes  to  Staniland,  the  potatoes  being  in  the 
ground  on  Parker's  land,  and  Staniland  agreed  to  dig  them  and  pay  a  price 
per  bushel.  After  digging  a  part  of  the  potatoes  and  paying  for  them,  Stani- 
land refused  to  take  the  rest  or  pay  for  them,  and  when  Parker  sued  him  he 
claimed  that  the  contract  was  not  enforceable  because  not  written  as  required 
of  contracts  for  the  sale  of  an  interest  in  land.  He  was  compelled  to  pay  for 
the  potatoes  in  the  ground,  the  contract  being  for  the  sale  of  goods,  of  which 
he  had  accepted  and  received  a  part.    Parker  vs.  Staniland,  1 1  East.  (Eng.)  362. 

253.  Determination  of  Value.  In  determining  whether 
the  value  in  a  given  case  exceeds  the  amount  specified  in  the 
statute  of  frauds  (fifty  dollars  in  the  English  statute),  the  ques- 
tion properly  is,  what  is  the  total  value  of  all  the  goods  bargained 
for  in  one  sale  or  contract  to  sell?  The  mere  fact  that  several 
different  articles  are  bought,  and  that  a  different  price  is  agreed 
upon  for  each  article,  does  not  necessarily  prove  that  several 
contracts  existed.  If,  however,  from  the  intention  of  the  parties 
it  does  appear  that  there  were  several  distinct  contracts,  it  is 
incorrect  to  add  the  various  amounts  together  in  determining 
whether  the  statute  applies.  This  depends  on  the  circumstances 
of  the  purchase  and  the  intention  of  the  parties. 

EXAMPLES 
1.  Parker  went  to  the  shop  of  Baldey,  a  linen  draper,  and  bought  several 
articles  of  wearing  apparel,  none  of  which  was  of  the  value  of  fifty  dollars, 
but  which  altogether  were  valued  at  $350.  When  the  goods  were  delivered  at 
Parker's  home  he  refused  to  receive  them,  saying  that  he  had  changed  his  mind. 
Baldey  was  without  remedy  because  the  contract  was  verbal,  no  part  received 
and  accepted,  no  payment  made  and  the  value  of  the  goods  so  sold  in  a  single 


FORM   OF   CONTRACT  OF   SALE  187 

sale  amounted  to  more  than  the  statutory  limit.     Baldey  vs.  Parker,  2  B.  &  C, 
(Eng.)  37. 

2.  Sheehan,  who  owned  twenty  shares  of  stock  in  the  Colorado  Springs 
Company,  entered  into  a  verbal  agreement  with  Tompkins  to  sell  the  twenty 
shares  which  he  owned,  and  also  to  sell  as  agent  the  shares  of  Smith,  Jenkins, 
and  Simmons.  The  value  of  the  shares  of  neither  Sheehan,  Smith,  Jenkins, 
or  Simmons  amounted  to  fifty  dollars,  but  together  the  value  was  in  excess  of 
this  amount.  The  agreement  was  valid  and  enforceable  because  each  contract 
was  deemed  a  separate  contract,  Tompkins  having  agreed  to  buy  goods  owned 
by  different  persons.     Tompkins  vs.  Sheehan,  158  N.  Y.  617. 

254.  Not  Enforceable  by  Action.  Contracts  for  the  sale  of 
goods  are  not  enforceable  by  action  unless  they  correspond  with 
the  provisions  of  the  Statute  of  Frauds.  This  does  not  mean  that 
the  contracts  are  void,  for  the  parties  may  perform  them  if  they 
wish,  but  it  does  mean  that  neither  of  the  immediate  parties  to 
the  contract  can  enforce  it  against  the  other  in  court,  should  the 
other  object.  That  the  contract  does  not  conform  to  the  require- 
ments of  the  Statute  of  Frauds  is  therefore  a  personal  defense  of 
the  parties  to  the  contract  and  is  not  an  available  defense  to 
third  parties,  that  is,  third  parties  cannot  escape  liability  on  the 
ground  that  a  contract  between  others  did  not  conform  to  the 
requirements  of  the  statute.  Such  questions  may  arise  when  a 
third  party  by  a  wrongful  act  prevents  one  of  the  parties  to  a 
contract  from  performing  it.  He  may  be  sued  for  damages  for 
this  wrongful  act  and  that  the  contract  did  not  conform  to  the 
statute  is  no  defense  to  him. 

EXAMPLE 

Jackson  verbally  contracted  with  Jones  to  sell  a  large  quantity  of  lumber 
for  $5000.  Stanfield  learned  of  this  contract,  offered  to  furnish  Jones  the  lum- 
ber at  a  lower  price  and  guaranteed  to  protect  Jones  if  he  would  break  his 
contract  with  Jackson.  Jackson  sued  Stanfield  for  causing  Jones  to  break 
this  contract  and  Stanfield  defended  on  the  ground  that  the  contract  was  not 
enforceable  because  it  did  not  conform  to  the  requirements  of  the  Statute  of 
Frauds.  Jackson  was  allowed  to  recover  damages  against  Stanfield,  for  the 
defense  was  personal  with  Jones  and  extended  only  to  the  immediate  parties 
to  the  contract.     Jackson  vs.  Stanfield,  137  Ind.  592. 

255.  Note  or  Memorandum  in  Writing.  One  of  the  methods 
of  conforming  to  the  requirements  of  the  Statute  of  Frauds  is  to 
have  a  written  note  or  memorandum  of  the  bargain  signed  by  the 
party  to  be  charged,  or  by  some  agent  in  his  behalf.  This  note 
or  memorandum  need  not  be  a  formal  document.     It  is  sufficient 


188  FORM   OF   CONTRACT  OF  SALE 

if  it  consists  of  an  admission  of  the  existence  of  the  contract 
signed  by  the  party,  stating  the  names  or  descriptions  of  the 
parties,  the  price,  and  the  goods  sold.  This  memorandum  may 
be  either  retained  by  the  party  signing  it,  or  delivered,  and  in 
either  event  it  is  sufficient. 

The  following  is  a  sufficient  memorandum: 

"I  have  this  day  agreed  to  buy  of  George  Underwood  700  bushels  of  spring 
potatoes,  to  be  delivered  at  my  warehouse  within  sixty  days,  for  which  I  will 
pay  sixty  cents  a  bushel.     Signed,  Henry  Coe." 

In  commercial  usage  it  is  customary  in  important  transactions 
to  use  a  more  formal  instrument  known  as  a  Bill  of  Sale,  which  in 
addition  to  complying  with  the  requirements  of  the  Statute 
of  Frauds  also  contains  provisions  warranting  the  seller's  title 
and  right  to  possession.  The  buyer  usually  records  this  instru- 
ment with  the  clerk  of  the  city,  village,  or  town  so  as  to  protect 
himself  against  a  wrongful  act  of  the  seller  in  subsequently 
reselling  the  same  property  to  another  person. 

Bill  OF  S.\le 

ffenotD  ^n  iHen  bp  Wf}t^  Resent*,  That  R.  E.  Parker,  of  the  City 
of  Chicago,  in  the  County  of  Cook,  and  State  of  Illinois,  party  of  the  first  part, 
for  and  in  consideration  of  the  sum  of  One  Hundred  and  Fifty  Dollars,  law- 
ful money  of  the  United  States  of  America,  to  him  in  hand  paid,  at  or  before 
the  ensealing  and  delivery  of  these  presents,  by  F.  S.  Blair,  of  the  second  part, 
the  receipt  whereof  is  hereby  acknowledged,  has  granted,  bargained,  sold,  and 
delivered,  and,  by  these  presents,  does  grant,  bargain,  sell,  and  deliver,  unto 
the  said  party  of  the  second  part,  all  the  following  goods,  chattels,  and  property, 
to-wit:     One  Remington  Typewriter,  No.  14678. 

tCo  l^abe  anb  to  ^olb  the  said  goods,  chattels,  and  property  unto  the  said 
party  of  the  second  part,  his  heirs,  executors,  administrators,  and  assigns,  to 
and  for  his  own  proper  use  and  behoof,  forever. 

3nb  tlie  said  party  of  the  first  part  does  vouch  himself  to  be  th-e  true  and 
lawful  owner  of  tlie  said  goods,  chattels,  and  property,  and  have  in  himself  full 
power,  good  right,  and  lawful  authority,  to  dispose  of  the  said  goods,  chattels, 
and  property,  in  manner  as  aforesaid.  A  fid  he  does,  for  himself,  as  well  as 
for  his  heirs,  executors,  and  administrators,  covenant  and  agree  to  and  with 
the  said  party  of  tlie  second  part,  to  warrant  and  defend  the  said  goods,  chattels, 
and  property  to  the  said  party  of  the  second  part,  his  executors,  administrators, 
and  assigns,  against  tlie  laiiful  claims  and  demands  of  all  and  every  person  and 
persons  whomsoever. 

Kn  Witntii  W\itxtoi,  I  have  hereunto  set  my  hand  and  seal,  the  24th  day  of 

July,  in  tlie  year  one  thousand  nine  hundred  fifteen.     R.  E.  PARKER.     [Seal] 

Sealed  and  delivered  in  the  presence  of  \ 

L.    MITCHELL. 


FORM   OF   CONTRACT   OF  SALE  189 

256.  Receipt  and  Acceptance  of  Part  of  Goods.  One  man- 
ner in  whicJi  the  requirements  of  the  Statute  of  Frauds  may  be 
satisfied,  is  by  the  receipt  and  acceptance  of  a  part  of  the  goods 
sold  by  the  buyer,  as  has  been  previously  stated.  If  thjs  be  done 
the  contract  will  be  enforced  regardless  of  the  non-existence  of  a 
written  memorandum.  Acceptance  of  goods  may  precede,  be 
contemporaneous  with,  or  be  subsequent  to  receipt  of  the  goods, 
and  both  may  be  subsequent  to  the  contract  of  sale. 

EXAMPLES 

1.  Dean  agrees  to  sell  Sauer  some  wheat  in  a  bin.  Subsequently  Dean 
separates  the  proper  amount  of  wheat  from  the  remainder  of  the  mass  and 
delivers  it  to  Sauer,  who  accepts  it.  Here  the  receipt  and  delivery  are  sub- 
sequent to  the  contract  to  sell.  After  they  have  taken  place  the  contract  is 
an  executed  sale.  If  Sauer  had  received  and  accepted  only  part  of  the  wheat 
which  he  agreed  to  buy,  the  contract  would  have  been  enforceable  by 
either  party. 

2.  If  in  the  above  example  Dean  had  delivered  the  wheat  in  bags  at 
Sauer's  warehouse,  in  the  absence  of  Sauer,  the  latter's  acceptance  might  take 
place  by  act  as  well  as  word.  Thus,  if  after  the  delivery  Sauer  had  not  com- 
municated with  Dean,  nor  even  examined  the  wheat,  but  had  exercised  an  act 
of  ownership  as  by  reselling,  or  agreeing  to  resell  it,  to  Gray,  this  act  would  be 
deemed  an  acceptance  and  he  could  not  later  refuse  to  keep  the  wheat  or 
pay  for  it. 

If  the  receipt  and  acceptance  of  a  part  of  the  goods  be  relied 
upon  to  satisfy  the  requirements  of  the  statute,  it  must  be 
shown  that  the  part  received  was  not  merely  a  sample  to  indicate 
the  general  nature  of  the  commodity,  such  as  merchants  fre- 
quently deliver  free  of  charge  as  an  advertisement,  but  that  the 
part  received  actually  diminished  the  bulk,  that  is,  the  quantity 
of  the  goods  subsequently  to  be  delivered  to  the  buyer. 

257.  Part  Payment.  As  previously  stated,  another  manner 
in  which  the  requirements  of  the  Statute  of  Frauds  may  be 
satisfied  is  by  the  payment  of  a  part  of  the  price  by  the  buyer, 
or  the  giving  of  something  in  earnest  to  bind  the  bargain.  No 
specific  amount  is  required  to  be  paid,  but  it  does  require  pay- 
ment, and  a  mere  promise  to  pay  is  insufficient.  The  payment 
need  not,  however,  be  in  money;  it  may  be  made  in  other 
property. 

'  EXAMPLE 

Edgerton  bought  975  pounds  of  milk  cheese  of  Hodge  to  be  delivered  when 
he  wanted  it.     After  the  bargain  was  made  Hodge  wrote  Edgerton  stating 


190  FORM   OF  CONTRACT  OF  SALE 

that  if  he  wished  the  cheese  kept  for  him  he  must  send  fifty  dollars  in  part 
payment.  Edgerton  immediately  mailed  his  check  for  that  amount,  but 
the  price  of  cheese  advanced  meanwhile  and  Hodge  returned  the  check  and 
sold  the  cheese  to  other  parties.  Edgerton  was  without  remedy  because  the 
contract  was  not  in  writing,  and  there  had  been  no  part  payment  because 
Hodge  did  not  accept  the  money,  or  its  equivalent.  Edgerton  vs.  Hodge, 
41  Vt.  676. 

REVIEW    QUESTIONS 

1.  Miller,  owning  a  quantity  of  logs  in  a  mill-pond  adjacent  to  his  mill, 
made  a  verbal  contract  with  Carpenter  to  manufacture  the  logs  as  follows: 
(1)  To  cut  them  so  far  as  possible  into  dimension  stuff  of  dimensions  to  be 
furnished  by  Carpenter;  (2)  the  balance,  so  far  as  practicable,  into  common 
lumber;  (3)  whatever  was  left  into  shingles;  for  all  of  which  Carpenter  agreed 
to  pay  a*  specified  price  per  thousand  feet.  Miller  fully  performed  his  part  of 
the  contract,  and  the  amount  due  under  (1)  was  $3,000;  under  (2)  $1,500, 
and  under  (3)  $1,000.  Carpenter  declined  to  accept  or  pay  for  any  of  it,  and 
Miller  sued  him  on  the  contract.     May  he  recove"-?     If  so,  how  much? 

2.  Mercy  verbally  sold  to  Winslow  (1)  all  ot  the  hay  which  would  grow 
on  his  farm  for  the  coming  season,  for  $100;  (2)  all  of  the  pine  lumber  on  his 
farm,  for  $800;  (3)  all  the  wheat  growing  on  his  farm,  for  $400;  which  prices 
Winslow  agreed  to  pay.  Later  Mercy  cut  the  hay  and  harvested  the  wheat, 
storing  it  in  his  barn  to  be  later  delivered  to  Winslow.  A  fire  destroyed  the 
barn  and  its  contents  and  damaged  the  standing  timber.  Who  bears  the  loss? 
Why? 

3.  Suppose,  in  the  above  question,  eliminating  the  element  of  the  fire, 
that  Mercy  had  offered  to  deliver  the  hay  and  wheat,  and  that  Winslow 
had  refused  to  accept  them.     Would  Mercy  have  had  any  remedy?     What? 

4.  Loomis  examined  barrel  hoops  at  Potter's  factory  and  agreed  orally 
to  purchase  some  for  $200.  Loomis  told  Potter  to  deliver  them  to  his  steamer 
Winnebago  for  transportation.  Potter  delivered  them  to  Loomis'  steamer. 
The  Winnebago  was  destroyed  on  Lake  Michigan  with  her  cargo.  Potter  sued 
Loomis  for  the  price,  and  Loomis  defended  on  the  ground  that  the  contract 
was  not  in  writing.     May  Potter  recover?     Why? 

5.  Mason  wrote  to  Jarvis,  "Please  quote  price  of  brass  hoops." 
Jarvis  later  wrote  Mason  a  letter  in  regard  to  other  matters  and  added  an 
unsigned  post-script  as  follows:  "P.  S.  Will  make  price  of  two  tons  of  hoops, 
immediate  delivery,  17  cents  lb."  Mason  by  telephone  accepted  the  offer, 
ordering  two  tons.  Jarvis  acknowledged  the  telephone  conversation  by  a 
letter  stating  that  he  would  ship  the  hoops  at  once.  Later  he  refused  to 
deliver  the  hoops  on  the  ground  that  the  contract  was  not  in  writing.  May 
Mason  recover  for  breach  of  contract?     Why? 

6.  Archer  and  Conklin  drew  a  bill  of  sale  whereby  Archer  agreed  to  buy, 
and  Conklin  to  sell,  five  tons  of  coal  for  $8  a  ton.  Archer  received  the  coal 
and,  when  Conklin  sued  him  for  $40,  Archer  attempted  to  show  that  he  and 
Conklin  had  orally  agreed  at  the  time  of  the  contract  that  the  price  of  the  coal 
should  be  only  $6  a  ton.     May  he  do  so?     Why? 


CHAPTER  XXV 
TRANSFER   OF  TITLE 

258.  Introduction.  The  object  of  a  sale  of,  or  contract  to 
sell,  goods  is  to  transfer  the  title  or  property  in  them  from  the 
seller  to  the  buyer.  The  time  at  which  the  transfer  of  property 
rights  takes  place  is  important  as  between  seller  and  buyer,  for 
several  reasons.  After  the  title  has  been  transferred  to  tthe 
buyer  he  must  bear  any  risk  of  loss,*  and  is  also  entitled  to  the 
benefit  of  any  gain  or  increase.  He  may  again  transfer  the  title 
to  another,  even  against  the  objection  of  the  original  seller,  or 
the  goods  may  be  taken  by  his  creditors  to  satisfy  his  debts 
through  the  medium  of  an  execution  and  levy.  He  must  also 
pay  the  price  to,  the  seller. 

Before  the  title  to  personal  property  which  is  the  subject 
matter  of  a  sale  has  been  transferred,  the  goods  still  belong  to 
the  seller  and  he  bears  the  risk  of  loss,  receives  the  benefit  of 
increase,  holds  the  goods  subject  to  the  rights  of  his  own  credi- 
tors, and,  if  the  buyer  refuses  to  accept  them,  is  limited  to  an 
action  for  damages  for  breach  of  contract,  instead  of  being  able 
to  recover  the  contract  price.  Or  he  may  transfer  a  valid  title 
in  the  goods  to  a  third  person,  which  will  be  valid  even  against 
the  original  buyer,  though  should  he  do  so  the  buyer  may 
recover  the  damages  which  he  has  sustained  by  reason  of  the 
seller's  breach  of  contract. 

While  it  is  apparent  that  it  is  of  the  utmost  importance  to 
discover  when  the  title  to  the  goods  has  been  transferred  from 
the  seller  to  the  buyer,  the  determination  is  not  always  a  simple 
task.  A  sale  is  the  result  of  a  contract  relation,  and  as  is  true 
with  all  contracts  the  intention  of  the  parties  is  the  controlling 


*  If  after  title  has  been  transferred  to  the  buyer,  together  with  the  risk  of 
loss,  the  buyer  should  allow  the  seller  to  retain  possession  of  the  goods,  the 
latter  could  not  of  course  wantonly  destroy  them,  nor  could  he  be  relieved  from 
loss  because  of  the  transfer  of  title  if  his  negligence  resulted  in  their  destruction 
or  injury.  The  duty  which  devolves  upon  a  custodian  of  another's  goods  is 
discussed  under  the  subject  of  Bailments. 

191 


192  TRANSFER  OF   TITLE 

factor.  Whenever  this  intention  is  indicated,  it  alone  will 
determine  the  time  of  transfer.  If  it  is  clear  that  the  parties 
intended  that  title  should  pass  at  a  certain  time  in  the  negotia- 
tions, title  will  be  considered  to  have  passed  at  that  time.  But 
if  they  did  not  intend  that  it  should  have  passed,  it  will  be 
deemed  to  remain  in  the  seller. 

It  is  not  always  an  easy  task,  however,  to  determine  the 
intention  of  the  parties  from  their  words  and  conduct.  In  the 
majority  of  instances  the  parties  to  a  sale  say  nothing  about  the 
time  of  the  transfer  of  title,  and  if  disputes  arise  in  these  instances 
the  intention  of  the  parties  must  be  determined  from  their  acts 
and  conduct  and  the  circumstances  of  the  particular  sale. 

259.  Ascertained  and  Unascertained  Goods.  Various  rules 
are  applied  in  determining  the  intention  of  the  parties,  and  the 
application  of  these  rules  depends  upon  w^hether  the  goods  which 
are  sold,  or  contracted  to  be  sold,  are  ascertained  or  unascer- 
tained. If  the  goods  which  are  the  subject  of  the  sale  are  specific, 
and  designated  so  that  both  the  seller  and  buyer  know  exactly 
what  goods  are  the  subject  of  the  sale,  and  no  others  will  suffice, 
the  sale  is  one  of  ascertained  goods.  On  the  other  hand,  if  the 
goods  are  merely  described  generally  and  any  goods  of  like 
character  will  suffice,  or  if  a  future  act  of  the  parties  is  necessary 
to  designate  them,  the  sale  is  of  unascertained  goods. 

EXAMPLES 

1.  Cook  contracts  to  sell  to  Brown  10,000  first-class  vitrified  bricks, 
Brown  agreeing  to  pay  $40  a  thousand  on  delivery.  This  is  a  contract  to  sell 
unascertained  goods,  for  no  particular  body  of  bricks  is  within  the  contempla- 
tion of  the  parties. 

2.  Cook  contracts  to  sell  to  Brown  all  the  bricks  in  his  warehouse  in 
South  Bend,  being  10,000,  more  or  less,  which  Brown  agrees  to  buy  at  an  agreed 
price  for  the  lot.  This  is  a  contract  to  sell  ascertained  goods,  for  a  particular 
body  of  goods  is  within  the  contemplation  of  the  parties. 

260.  Rules  in  Sales  of  Ascertained  Goods.  Rule  One.  In 
case  there  is  an  unconditional  contract  to  sell  specific  goods,  in  a 
deliverable  state,  the  property  in  the  goods  passes  to  the  buyer 
when  the  contract  is  made.  It  is  immaterial  whether  the  time 
of  payment,  or  time  of  delivery,  or  both,  be  postponed. 

EXAMPLE 
1.     Tarling  on  January  4th  agreed  to  buy  a  stack  of  hay  of  Baxter,  to  be 
paid  for  on  February  4th,  and  to  remain  on  Baxter's  land,  where  it  then  stood. 


TRANSFER  OF   TITLE  193 

until  May  first,  when  Tarling  was  to  remove  it.  On  January  20th  the  hay  was 
destroyed  by  fire,  and  Tarling  suffered  the  loss,  for  title  was  deemed  to  have 
been  transferred  when  the  contract  was  made.  The  goods  were  specified  and 
ascertained,  although  both  payment  and  deliver^'  were  postponed.  Tarling 
vs.  Baxter,  6  B.  &  C.  (Eng.)  360.  The  parties  could,  however,  by  express 
agreement,  have  postponed  the  time  of  the  transfer  of  title,  in  which  event  the 
seller  would  have  continued  to  bear  the  risk  of  loss. 

Rule  Two.  When  the  contract  is  to  sell  specific  goods,  if 
something  remains  to  be  done  by  the  seller  to  put  them  in  a 
deliverable  state,  the  property  in  them  is  not  transferred  to  the 
buyer  until  this  is  done  and  notice  given.  Similarly,  if  the 
seller  is  required  to  measure  or  weigh  the  goods  for  the  purpose 
of  ascertaining  the  amount  due,  the  title  is  not  considered  to  be 
transferred  until  this  is  done. 

EXAMPLES 
1.  Brown  made  a  written  agreement  with  Furniss,  selling  the  latter  a 
one-half  interest  in  the  steam  boat  Rhode  Island,  agreeing  to  fit  out  the  boat 
in  a  suitable  manner  for  her  to  proceed  from  New  York  to  the  Pacific.  After 
the  contract  and  before  the  boat  was  entirely  fitted  out  it  was  destroyed  by 
fire.  Brown  was  compelled  to  suffer  the  loss.  Decker  and  Brown  vs.  Furniss, 
U  N.  Y.  614. 

Rule  Three.  If  ascertained  goods  are  delivered  to  the 
buyer  on  trial  or  on  approval,  the  property  in  them  passes  to 
him,  (1)  when  he  signifies  his  approval  or  (2)  if  he  does  not 
return  them  within  a   reasonable   time. 

The  parties  may,  however,  make  the  sale  a  transaction 
known  as  a  "sale  or  return,"  by  which  the  goods  are  delivered  to 
the  buyer  with  the  understanding  that  the  property  is  to  pass  to 
him  immediately,  but  that  he  may  afterwards  return  the  goods 
if  he  sees  fit,  in  which  event  the  title  is  in  the  buyer  until  he 
returns  the  goods.  Such  a  sale  is  an  exception  to  the  general  rule 
and  exists  only  where  the  parties  have  made  it  clear  that  they 
intended  such  a  result  to  follow. 

EXAMPLE 
1.  Fairfield  made  a  written  contract  with  the  Madison  Manufacturing 
Company  for  the  purchase  of  a  reaper,  one  of  the  terms  being  that  the  reaper 
should  be  delivered  to  him  for  a  fair  trial  and  that  if  he  did  not  find  the  machine 
as  represented  he  should  return  it.  He  tried  it  for  two  days  and  then  notified 
the  seller  that  it  was  unsatisfactory,  and  that  he  would  return  it  to  any  place 
the  seller  designated.  The  seller  suffered  the  loss  caused  by  the  destruction  of 
the  reaper.     Fairfield  vs.  Madison  Manufacturing  Company,  38  Wis.  347. 


194  TRANSFER  OF   TITLE 

261.  Unascertained  Goods.  Rule  One.  When  the  seller 
purports  to  sell,  and  the  buyer  to  buy,  an  undivided  share  in  a 
specific  mass  of  goods,  the  property  in  a  proportionate  share  of 
the  mass  is  deemed  to  have  been  transferred,  even  though  the 
number,  weight,  and  measure  of  the  goods  in  the  mass  is 
undetermined. 

This  is  known  as  a  sale  of  fungible  goods,  being  goods  such  as 
oil,  grain,  or  molasses,  which  is  a  uniform  mass,  of  which  a  part  is 
sold.  At  the  making  of  the  contract  the  property  in  a  part  of 
the  mass  is  immediately  transferred  without  its  separation  and 
the  buyer  becomes  an  owner  in  common  of  the  mass. 

Rule  Two.  When  the  goods  which  are  sold,  or  contracted 
to  be  sold,  are  unascertained,  the  property  in  them  is  transferred 
from  the  seller  to  the  buyer  at  the  time  at  which  the  goods  are 
unconditionally  appropriated  to  the  contract. 

Edwards  in  Ohio  ordered  a  quantity  of  calf  and  buff  shoes  from  Smith 
in  Massachusetts.  Smith  manufactured  the  shoes  according  to  specification 
and  delivered  them  to  the  railroad  for  transportation.  In  a  contest  between 
creditors  it  was  decided  that  the  title  was  transferred  at  the  time  of  delivery 
to  the  railroad,  Smith  having  then  complied  with  the  conditions  of  the  con- 
tract.    Smith  vs.  Edwards,  156  Mass.  221. 

Rule  Three.  If  the  contract  of  sale  by  its  express  terms 
requires  the  seller  to  deliver  the  goods  to  the  buyer,  or  at  a 
particular  place,  or  to  pay  the  freight  or  cost  of  transportation  to 
the  buyer,  or  to  a  particular  place,  the  property  in  the  goods  is 
not  transferred  until  the  goods  have  been  delivered  to  the  buyer 
or  reach  the  place  agreed  upon. 

EXAMPLE 

Brown  ordered  98  tons  of  coal  from  McNeal,  to  be  delivered  at  Brown's 
wharf  at  Burlington.  McNeal  shipped  the  coal  by  barge,  the  barge  sinking 
at  night  while  anchored  alongside  the  wharf  in  Burlington  before  being 
unloaded.  McNeal  suffered  the  loss,  because  there  had  been  no  delivery  and 
the  title  and  risk  of  the  goods  were  still  in  the  seller.  McNeal  vs.  Brown, 
53  N.  Y.  L.  617. 

262.  Title  to  C.  O.  D.  Shipments.  No  uniform  rule  exists 
regarding  C.  O.  D.  (Collect  on  Delivery)  shipments,  or  ship- 
ments in  which  the  railroad,  postal  department,  or  express 
company,  is  instructed  by  the  seller  to  collect  on  delivery,  and 


TRANSFER  OF  TITLE  195 

not  to  surrender  the  goods  to  the  buyer  until  the  freight  charges 
and  purchase  price  have  been  paid  to  the  carrier.  In  Georgia, 
Iowa,  Missouri,  Vermont,  Indiana,  Massachusetts,  and  North 
Carolina,  the  seller  retains  title  until  the  price  has  been  paid. 
In  the  majority  of  the  states,  however,  the  property  is  considered 
to  have  been  transferred  to  the  buyer  immediately  upon  delivery 
to  the  transportation  company,  even  though  the  buyer  cannot 
receive  the  goods  until  he  has  paid  the  price.  The  latter  is  the 
view  adopted  by  the  Uniform  Sales  Act.  The  law  applicable  in 
the  state  where  delivery  to  the  carrier  is  made  determines  the 
matter. 

263.  Necessity  of  Delivery.  As  between  seller  and  buyer 
the  delivery  of  the  goods  sold  is  not  necessary  to  transfer  the 
title.  Even  though  the  goods  are  retained  by  the  seller  the  risk 
of  loss  is  frequently  borne  by  the  buyer.  But  if  no  bill  of  sale 
has  been  given  and  recorded  the  delivery  of  the  goods  is  of  the 
utmost  importance  when  disputes  arise  regarding  the  rights  of 
third  persons.  Suppose  that  Ames  has  sold  all  the  hay  in  his 
barn  to  Bates,  but  retains  the  hay.  Bates  bears  the  risk  of  loss, 
for  as  between  him  and  Ames  the  property  has  been  transferred, 
although  the  seller  has  retained  possession.  But  if  Ames,  while 
still  in  possession  of  the  goods,  resells  them  to  Call,  who  carries 
them  away,  or  borrows  money  from  Dale,  then  either  Call  or  Dale 
may  acquire  a  title  which  is  superior  to  that  of  Bates.  This  is 
because  the  sale  between  Ames  and  Bates  is  considered  fraudu- 
lent as  against  third  parties  who  acquire  rights  under  the  assump- 
tion that  the  goods  belong  to  Ames,  the  seller,  relying  on  Ames' 
possession. 

Two  rules  exist  to  protect  third  parties  against  such  acts  of 
the  buyer  who,  by  leaving  the  seller  in  possession  of  the  goods, 
creates  a  situation  which  results  in  damage.  The  first  applies 
to  subsequent  purchasers  of  the  goods  in  good  faith,  such  as  Call 
above,  and  the  second  to  the  rights  of  creditors  of  the  seller, 
such  as  Dale  above.  / 

Subsequent  Purchasers.  If  a  buyer  leaves  the  goods 
purchased  in  the  hands  of  a  seller  and  the  seller  wrongfully 
sells  and  delivers  the  goods  to  a  third  party,  this  subsequent 
purchaser  acquires  a  title  in  them  superior  to  that  of  the  first 


196  TRANSFER  OF   TITLE 

buyer,  who  allowed  the  seller  to  retain  possession.  In  favor  of 
the  subsequent  purchaser,  the  original  sale  is  void  because  of  the 
failure  to  have  a  delivery.  The  Uniform  Sales  Act,  Section  25, 
contains  a  clear  statement  of  the  law  on  this  point  as  follows: 

When  a  person  having  sold  goods  continues  in  possession  of  the  goods,  the 
delivery  or  transfer  by  that  person  of  the  goods  under  any  sale,  pledge,  or 
other  disposition  thereof,  to  any  person  receiving  and  paying  value  for  the  same 
in  good  faith  and  without  notice  of  the  previous  sale,  shall  have  the  same  effect 
(that  is,  as  to  the  rights  of  the  last  purchaser)  As  if  the  person  making  the  deliv- 
ery or  transfer  were  expressly  authorized  by  the  owner  of  the  goods  to  make 
the  same. 

As  to  Creditors.  Ordinarily  creditors  may  sieze  any  goods 
belonging  to  a  debtor.  If  he  holds  possession  of  the  goods  and 
claims  that  someone  else  owns  them,  it  is  presumed  that  the 
claim  is  fraudulent.  In  most  states  this  evidence  is  only  pre- 
sumptive, and  if  the  debtor  can  prove  that  the  goods  have  already 
been  sold  in  good  faith,  the  tale  will  stand.* 

EXAMPLES 

1.  Ingalls  bought  from  Lougee  21  bales  of  wool,  which  were  left  for  the 
time  being  in  Lougee's  warehouse.  While  they  were  there,  the  sheriff  took 
possession  of  them  in  behalf  of  some  of  Lougee's  creditors.  Ingalls  proved 
that  he  had  bought  and  paid  for  the  wool  in  good  faith  and  that  he  had  not 
removed  it  at  once  on  account  of  its  bulk,  but  that  he  would  have  done  so 
within  a  short  time.  The  court  allowed  Ingalls  to  recover  the  wool  from  the 
sheriff,  the  law  being  that  while  the  transaction  was  presumptively  fraudulent 
he  had  proved  that  it  was  not  so  in  fact,  and  could  therefore  assert  his  title 
in  the  goods.     Ingalls  vs.  Herrick,  108  Mass.  351. 

2.  A  sale  in  which  the  seller  keeps  possession  is  not  absolutely  void  as 
against  creditors,  but  is  merely  presumptive  evidence  of  fraud.  Martindale 
vs.  Booth,  3  B.  &  A.  (Eng.)  498.     McKibben  vs.  Martin,  64  Pa.  St.  352. 

The  safe  business  practice,  when  for  any  reason  the  seller  is 
allowed  to  retain  possession  of  the  goods  sold,  is  for  the  buyer 
to  require  a  formal  bill  of  sale,  and  to  record  the  bill  of  sale  with 
the  proper  officer,  usually  the  town,  city,  or  village  clerk,  '^his 
serves  to  give  notice  to  all  subsequent  parties,  who  cannot  then 

*In  other  states  the  same  rule  is  applied  in  regard  to  creditors  as  is  applied 
to  protect  innocent  subsequent  purchasers,  that  is,  that  the  buyer  loses  all 
rights  as  against  third  parties  by  allowing  the  seller  to  retain  possession. 
These  states  are  California,  Colorado,  Connecticut,  Idaho,  Illinois,  Iowa, 
Kentucky,  Maryland,  Missouri,  Montana,  Nevada,  New  Hampshire,  Okla- 
homa, South  Dakota,  Utah,  Vermont  and  Washington. 


TRANSFER  OF  TITLE  197 

claim  to  have  innocently  and  ignorantly  relied  upon  the  seller's 
retention  of  possession  as  evidence  that  he  was  still  the  owner 
of  the  goods. 

264.  Sufficiency  of  Delivery.  The  buyer  may  avoid  all 
danger  of  losing  his  rights  in  the  goods,  either  to  subsequent 
purchasers  or  to  creditors  of  the  seller,  if  he  insists  upon  the  goods 
being  delivered  to  him.  The  requisites  essential  to  a  valid  de- 
livery depend  upon  the  nature  of  the  article  sold.  If  the  article 
is  of  extreme  bulk  and  cannot  be  removed,  the  buyer  must  enter 
into  active,  open,  and  notorious  possession  and  perform  acts 
which  will  indicate  generally  that  he  and  not  the  seller  is  the 
owner  of  the  goods.  The  execution  of  a  bill  of  sale  constitutes 
such  an  act. 

265.  Conditional  Sales.  Not  only  does  the  buyer,  in  actual 
business,  often  allow  the  seller  to  retain  possession  of  the  goods 
after  title  has  been  transferred,  but  even  more  often  is  the  buyer 
allowed  to  enter  into  possession  of  the  goods  before  the  title 
has  passed.  This  is  accomplished  by  a  conditional  sale,  the 
parties  contracting  that  the  title  shall  not  be  transferred  until 
the  buyer  has  paid  the  price,  which  is  often  to  be  paid  in  install- 
ments. Pianos,  sewing  machines,  and  typewriters  are  often  sold 
by  contracts  of  conditional  sale.  The  rule  of  the  common  law 
was  that  the  buyer  in  such  a  case  acquired  no  title  which  he  could 
transfer  even  to  an  innocent  purchaser  from  himself  for  value, 
and  that  the  seller  could  always  regain  the  goods  no  matter  into 
whose  hands  they  might  have  passed.  This  rule  has  been  quite 
generally  changed  by  statute  in  the  several  states.*  These 
statutes  usually  provide  that  conditional  sales  are  void  against 
any  innocent  purchaser  for  value  from  a  buyer  who  has  been 
placed  in  possession  of  the  goods,  unless  the  contract  of  condi- 
tional sale  is  recorded  in  writing  in  a  specified  public  place, 
usually  the  office  of  the  town,  city,  or  village  clerk.     As  between 


*  Such  statutes  exist  in  Alabama.  Arizona,  Colorado,  Connecticut, 
Florida,  Georgia,  Iowa,  Kansas,  Maine,  Minnesota,  Missouri,  Montana, 
Nebraska,  New  Hampshire,  New  Jersey,  New  York,  North  Carolina,  North 
Dakota,  Ohio,  Oklahoma,  South  Carolina,  Texas,  Vermont,  Virginia,  Washing- 
ton, West  Virginia,  Wisconsin  and  Wyoming.  In  Tennessee  the  only  require- 
ment is  that  conditional  sales  must  be  written  to  be  valid  as  to  third  persons. 
In  Massachusetts  the  recording  statute  applies  only  to  sales  ot  household 
furniture. 


198  TRANSFER  OF  TITLE 

the  buyer  and  the  seller,  the  parties  may  contract  validly  for 
the  retention  of  the  title  by  the  seller  as  security  for  the  purchase 
money,  but  innocent  parties  who  rely  on  the  possession  of  the 
goods  under  such  transactions  as  an  apparent  evidence  of  owner- 
ship and  title  will  not  be  allowed  to  suffer  by  such  agreements, 
if  secret;  if  they  are  recorded  as  public  documents,  all  persons 
are  presumed  to  know  of  them. 

266.  A  Chattel  Mortgage  from  its  form  would  appear  to  be  a 
form  of  conditional  sale,  but  it  is  in  reality  only  security  for  a 
debt.  The  parties  to  it  are  the  mortgagor,  who  is  the  debtor  who 
pledges  his  property  to  secure  a  debt,  and  the  creditor,  who  is 
called  the  mortgagee.  It  forms  a  popular  means  of  securing  a 
debt  by  a  pledge  of  personal  property,  and  does  not  constitute  a 
sale  of  the  property.  The  instrument,  known  as  a  chattel 
mortgage,  is  a  formal  document  by  which  the  owner  of  property 
agrees  that  another  person  shall  hold  the  title  to  the  property 
as  security  for  the  payment  of  a  debt.  It  provides  that  upon  the 
payment  of  the  debt,  the  title  shall  revest  in  the  original  owner, 
the  mortgagor. 

So  far  as  the  parties  themselves  are  concerned,  chattel 
mortgages  may  be  either  oral  or  written.  But  in  order  to  prevent 
fraud  upon  third  persons,  by  allowing  one  person  to  hold  the  title 
to  goods  as  security,  and  another  to  have  possession  of  the  goods, 
the  statutes  of  the  various  states  provide  that  they  must  be 
formally  executed  and  registered  or  recorded  with  some  desig- 
nated public  officer,  usually  the  town  clerk.  The  statutes 
usually  provide  that  a  chattel  mortgage  shall  have  no  effect 
against  innocent  third  parties  unless  it  is  executed  and  recorded 
in  the  manner  provided  by  law. 

The  mortgagee's  rights  depend  largely  upon  the  statutes  of 
the  state  in  which  the  mortgage  is  made,  and  also  upon  the  con- 
ditions of  the  instrument  itself.  The  mortgagee  is  frequently 
given  the  right  by  the  instrument  to  enter  the  premises  of  the 
mortgagor  at  any  time  and  take  possession  of  the  goods  upon 
the  failure  of  the  debtor  and  mortgagor  to  pay  the  debt  at  its 
maturity,  or  if  he  has  reason  to  believe  that  some  act  of  the 
mortgagor  has  imperiled  his  security.  Regulations  are  usually 
provided  for  the  advertisement  and  public  sale  of  the  property  so 


TRANSFER  OF  TITLE  199 

taken,  and  unless  the  mortgage  expressly  permits  it  it  cannot 
be  sold  at  private  sale. 

EXAMPLE 

Ames  borrowed  money  from  Bates,  and  to  secure  the  debt  gave  Bates  a 
chattel  mortgage  on  all  his  cattle.  This  was  recorded  with  the  town  clerk  two 
weeks  later,  on  June  1.  On  May  25,  Call,  a  creditor  of  Ames,  levied  upon 
three  cows,  as  did  Dale,  another  creditor  of  Ames,  on  June  5.  Call  could 
claim  the  cows  as  against  Bates,  but  Dale  could  not,  for  the 'recording  of  the 
mortgage  had  preceded  his  levy. 

REVIEW   QUESTIONS 

1.  A  contracted  to  sell  to  B  100  bushels  of  wheat,  to  be  put  up  by  A  in 
sacks  furnished  by  B,  and  subsequently  to  be  called  for  by  B.  B  paid  the  price 
at  the  time  of  the  bargain.  Thereafter  B  sent  A  enough  sacks  to  hold  the 
wheat,  and  A  at  once  began  to  fill  them.  He  completely  filled  and  tied  up  a 
quarter  of  the  sacks.  A  quarter  of  the  sacks  he  partially  filled.  He  was 
then  interrupted  and  shortly  after  became  bankrupt.  The  creditors  of  A 
claimed  the  wheat,  as  did  B.     Who  was  entitled  to  the  wheat?     Which  part? 

2.  A  agreed  to  sell  to  B  his  drove  of  cattle,  with  the  exception  of  five 
fat  calves  which  A  was  to  select  to  keep.  B  paid  one-half  the  purchase  money 
down,  and  was  to  call  the  next  day  for  the  drove  and  pay  the  balance.  That 
night  the  cattle  were  destroyed  by  a  flood.  Does  the  loss  fall  on  A  or  B? 
Why? 

3.  At  Mahoney's  request  Fisher  sends  a  stove  to  Mahoney,  to  be  returned 
if  not  found  satisfactory,  no  specified  time  being  given  in  which  the  stove  must 
be  returned.  Mahoney  keeps  the  stove  a  year  without  offering  to  return  it, 
and  then,  when  a  bill  is  presented  for  the  stove,  he  says  it  is  not  satisfactory, 
that  he  has  used  it  only  once,  and  had  stored  it  in  his  attic  ready  for  Fisher  to 
get  it  any  time,  and  now  offers  to  pay  a  delivery  man  to  return  it  to  Fisher. 
Has  the  sale  been  completed,  and  can  Mahoney  be  compelled  to  pay  for  the 
stove? 

4.  X  sells  B  250  bags  of  coffee,  marked  and  designated,  but  X  agrees  to 
weigh  the  bags  in  order  to  ascertain  the  total  price,  the  sale  being  by  the  pound. 
Has  title  passed  to  B? 

5.  A  sold  B  an  automobile  for  cash,  but  as  B  had  no  place  to  keep  it, 
A  agreed  that  it  might  be  left  in  his  garage  for  a  few  weeks  until  B  had  time  to 
build  a  garage.  During  this  time  B  used  the  machine  frequently,  coming  to 
A's  house  to  get  it  and  leaving  it  there  when  it  was  not  in  use.  A  did  not  use 
the  automobile  at  all  after  the  sale  to  B,  but  later  sold  and  delivered  it  to  X, 
who  paid  cash  and  had  no  notice  of  the  previous  sale  to  B.  As  A  was  finan- 
cially worthless  B  sued  X  to  recover  the  automobile.     May  he  recover?     Why? 


CHAPTER   XXVr 

TRANSFER  BY  BILLS   OF  LADING   AND 
WAREHOUSE   RECEIPTS 

267.  Introduction.  The  ordinary  conception  of  a  sale 
assumes  that  it  includes  the  delivery  of  the  goods  by  th?  seller 
to  the  buyer.  It  is  not  always  desirable,  however,  or  even 
possible,  to  effect  a  physical  transfer.  In  such  a  case  a  construc- 
tive delivery  can  be  made.  When  goods  are  in  the  hands  of  a 
common  carrier,  or  a  warehouseman,  it  is  important  to  know 
how  they  may  be  transferred  from  seller  to  buyer,  and  just  when 
such  transfer  takes  place.  One  who  holds  the  goods  of  another 
is  called  a  bailee. 

It  has  long  been  the  mercantile  custom  for  the  bailee,  if  a 
carrier  or  warehouseman,  to  issue  to  the  owner  a  receipt  for  the 
goods  which  will  entitle  the  owner  to  receive  the  goods  upon  its 
presenta,tion.  A  receipt  from  a  carrier  is  called  a  bill  of  lading; 
one  from  a  warehouseman,  a  warehouse  receipt.  Both  are 
commonly  known  as  documents  of  title,  and  are  governed  by  the 
same  rules  of  law.  In  the  warehouse  receipt  the  bailee  usually 
promises  to  deliver  the  goods  to  the  person  who  has  deposited 
them.  In  the  bill  of  lading  the  carrier  ordinarily  promises  to 
deliver  the  goods  to  the  person  to  whom  they  were  shipped,  who 
is  called  the  consignee.  In  the  following  discussion  reference 
will  be  made  principally  to  bills  of  lading,  for  convenience  of 
treatment,  but  it  is  to  be  noted  that  the  same  rules  are  applicable 
to  warehouse  receipts. 

In  Two  Forms.  Bills  of  lading  are  issued  in  two  forms. 
The  first,  called  a  straight  bill  of  lading,  names  a  particular  person 
to  whom  the  goods  are  to  be  delivered.  The  second  type, 
which  is  called  an  Order  bill  of  lading,  and  is  negotiable,  states 
that  the  goods  will  be  delivered  to  some  particular  person,  or 
to  his  order. 

200 


TRANSFER    BY    BILLS   OF    LADING 
Straight  Bill  of  Lading  (Not  negotiable) 


201 


Cty3.  fj^.    y:-^/^^^    4^  Railroad  Company 


STRAIGHT  BULL  OF  LADING-ORiCINAL-NOT  NECOIUBLE. 


-■.N^y^^ 


The  r»l6  o!  fret^t  frota_ 


'  *--' '  ■     -* ''     oLhereknrteroatbe:ow»«  M 

er  prlaMd or  wiUMtt.  beivltt 

IstaCsDUperlOOlbi. 


Ig    Consigned  *fs ^y^V^^/Z-'C^^ 

J I  **'^ 


fai<»  iiF4i*cwM)iF*»ciM«iif«ifcci»M[|    iniiaa   j    if  nhui 


'^^^ 


!  nf     ^^-rYlZ-^-y, 


_Coimty  of— 


oEStnmw  or  mtkus  iui>  tKCUL  auncs 


3g 


_^-^_^'. 


^^^^^ 


I  r  Ck&TMS  V*  M  b«  pr«|HM.  w 

■r  tUaplMr*  T^  b*  PimtC" 


»  •C»l  JlO|P'W»T» 


Order  Bill  of  Lading   (Negotiable) 

Heading  only 


UoinraBiof  l<<i*(— aaoftrtFomo(OrttrlDgllifa|i;rntdtTntMcniMe«DsieftttMiiiss^  W,  «(iawll,  t9M 

Gy^  Y-  £W^        Railroad  Company 


ORDER  BILL  OF  LADING-ORIGINAL 


Agents  No.  . 


RCCfXVED^  jubject  to  the  cUwificttiooi 

C- 


trooi . 


itioos  ood  lariSs  in  effect  oa  the  date.of  issue  of  this  Original  Bill  of  Lading, 


r  uld 


>Btif>n  knd  roDdltlcn  of  toateota  of  pi.ctc««cB  u 
CotBcrasr  tsre**  to  earrr  to  il«  niu&l  plan  of  delivery  > 

tb«  rourt  to  uld  destl  nation.     It  ll  natuallr  »CT«»d.  a«  ., _,  _.,  ..  — ,  .. ,._,-..,_    .__. 

rout*  to  dettlna'lon,  a&d  u  to  Mcb  party  Kt  any  time  lnterc»t«d  iD  all  or  any  of  aatd  property,  that  every  •©rvfca  to  b«  p«rforo)«« 
htreticder  vtail  t>«  subject  to  aJI  tbe  condittoos.  wtietber  pnated  or  writtao.  bcreia  coDtalatd  (iDCladlQS  coDdltloitf  oa  back  h«r*- 
ot>  and  wfaU!)  ar«  agreed  to  br  t)i«  8tlpp«r  aod  acc»pl«d  for  himat>1f  aod  hia  aaclfnA. 

TN«  EarrFnd>r  of  UiU  Ortetnal  OROKIl  BUI  of  lj»<*lnc  pr«p*Hy  In4*ra*4  atwU  b«  r«4alv*4  b»r«*«  lh«  ««1l«»rr  of  lh«  »M^My. 
^•<pc«<i<>«  or  prepvrly  ciOT««vd  by  chb  bui  of  UkOlnir  u  Itl  n««  b*  p«rfnt«t«<l  oalas*  ptOVM««  fry  !••  or  ubI* 
••  IklB  oritrtool  bill  sT  IsdtDs  or  s^vtn  to  vrlilas  by  t^«  Bl*lpp«r. 


ark«<l.  cocalcaed  aod  < 
□  y  of  M 


TH  Hatt  cf  Fnigbt  fnm^ 


to 

, _ _ 

. 

1$  III  etnti  Dw  100  Iba. 

9V        .    1 

t'SMCW 

n.TVMii 

ilif  inciMt  1  iri< 

Chn 

KM  CM 

irmciu. 

IF«4ltCi«s 

If  f  CIMI     If  ■  CiMi 

irCCMM 

If  D  Out 

WCClHi 

1                 1 

_,„ 

It  will  be  observed  that  the  only  material  difference  between 
these  two  forms  is  that  in  the  negotiable  type  the  goods  are  con- 
signed "to  order  of"  the  consignee,  while  the  words  of  negotia- 
bility are  omitted  in  the  straight,  or  non-negotiable  bill.     There 


202  TRANSFER   BY   BILLS  OF  LADING 

is  al?o  added  to  the  negotiable  type  a  provision  requiring  its 
surrender  properly  indorsed  before  delivery  of  the  goods  will 
be  made. 

268.  Methods  by  which  the  seller  retains  possession. 
When  goods  are  shipped  on  a  straight  bill  of  lading,  the  title  in 
them  is  in  the  buyer.  If  the  seller  wishes  to  retain  possession, 
he  should  at  the  time  of  shipment  secure  from  the  railroad  an 
order  bill  of  lading.  This  order  bill  of  lading  may  be  made  out 
in  one  of  three  ways. 

1.  The  seller  may  name  himself  as  consignee,  and  hold  the 
bill  of  lading  until  the  buyer  pays  him  or  pays  someone  else  for 
him. .  He  will  then  indorse  the  bill  of  lading  and  deliver  it  to  the 
customer. 

2.  The  seller  may  name  the  buyer  as  consignee,  or  may  name 
himself  as  consignee  and  immediately  endorse  in  favor  of  the 
buyer,  but  instead  of  sending  the  bill  of  lading  to  the  buyer,  send 
it  to  some  bank  or  other  collecting  agency  in  the  buyer's  city, 
with  a  draft  upon  the  buyer  attached  and  with  instructions  to 
deliver  the  bill  of  lading  to  the  buyer  only  upon  payment  of  the 
amount  of  the  draft. 

3.  The  seller  may  name  as  consignee  a  third  person,  say  a 
bank  in  the  city  of  the  buyer,  and  send  the  bill  of  lading  to  the 
bank  with  instructions  to  release  it  to  the  buyer  upon  his  payment 
of  a  certain  sum  of  money. 

The  second  plan  named  is  the  one  most  commonly  adopted 
and  is  the  best.  The  first  plan  is  desirable  only  when  the  con- 
signee is  unknown  at  the  time  of  shipment,  as  in  case  of  produce 
shipped  to  be  sold  en  route  or  at  destination.  The  third  plan  is 
undesirable  ordinarily  because  it  places  the  collecting  agent  in 
apparent  temporary  possession. 

All  three  plans  are  alike  except  that  the  consignee  is  different 
in  each  case.  The  object  in  each  case  is  the  same  —  each  is  a 
plan  by  which  the  seller  keeps  possession  until  he  gets  his  money. 

In  case  of  goods  stored,  the  same  three  plans  can  be  followed, 
but  the  evidence  of  title  is  in  this  case  a  warehouse  receipt 
instead  of  a  bill  of  lading. 


TRANSFER   BY   BILLS  OF   LADING  203 

269.  Transfer  of  Title  by  Means  of  Documents  of  Title. 

Not  only  are  bills  of  lading  and  warehouse  receipts  used  in  com- 
merce to  protect  the  seller  as  to  the  purchase  price,  but  they  are 
further  used  as  a  means  by  which  to  transfer  the  title  to  goods 
while  they  are  in  transit  or  stored  in  a  warehouse.  A  buyer  in 
New  York  may  purchase  grain  of  a  seller  in  North  Dakota. 
While  this  grain  is  being  conveyed  to  New  York,  or  after  it  has 
reached  New  York  and  is  stored  in  a  warehouse,  the  seller,  to 
whom  title  has  passed,  may  wish  to  dispose  of  it.  If  a  negotiable 
receipt  has  been  issued  by  which  the  bailee  has  promised  to 
deliver  the  grain  to  the  buyer,  or  to  his  order,  he  may  readily 
dispose  of  it  without  ever  receiving  the  grain.  He  does  this  by 
negotiating  the  document  of  title. 

When  goods  are  shipped  by  rail,  title  passes  at  the  time  of 
delivery  to  the  transportation  company  unless  the  shipper 
reserves  the  right  of  disposal,  as  by  having  the  bill  of  lading 
made  to  the  order  of  himself  or  his  agent. 

If  the  shipper  reserves  the  right  of  disposal,  title  passes  only 
when  he  disposes  of  it  to  the  buyer,  which  is  usually  done  by  a 
transfer  of  the  bill  of  lading  itself. 

If  it  can  be  proved  from  the  original  contract  that  the  inten- 
tion of  the  parties  was  that  title  should  pass  to  the  buyer  at  once, 
this  result  will  follow. 

270.  Parties  Who  May  Negotiate.  There  are  two  classes 
of  persons  who  may  negotiate  a  bill  of  lading  so  as  to  transfer  the 
interest  and  title  in  the  property  itself  to  another.  These  are 
(1)  the  owner  of  the  bill  of  lading,  and  (2)  a  person  who  has  been 
intrusted  with  it  by  the  owner,  in  case  the  form  is  such  that  it 
may  be  transferred  by  mere  delivery.  Neither  a  thief  nor  a 
finder  of  lost  documents  of  title  can  transfer  them  so  as  to  give  a 
valid  title,  even  to  an  innocent  purchaser  for  value. 

EXAMPLE 

Poor,  residing  in  Superior,  is  the  purchaser  and  consignee  of  goods  in  tran- 
sit, for  which  he  has  received  a  bill  of  lading  naming  him  "or  order"  as  con- 
signee. He  indorses  the  same  in  blank  and  sends  it  to  Cook  in  Milwaukee  to 
sell  the  goods  for  him  for  $600.  Instead  Cook  sells  them  to  Jones,  an  innocent 
purchaser  for  value,  for  $400,  and  absconds  with  the  proceeds.     Poor  cannot 


204  ■  TRANSFER    BY    BILLS   OF   LADING 

reclaim  the  goods  from  Jones,  or  even  prevent  the  railroad  company  from 
delivering  them  to  Jones  on  presentation  of  the  document  of  title,  for  Cook 
was  given  the  authority  to  transfer  the  document  of  title  and  the  fact  that  he 
violated  the  terms  of  that  authority  is  not  the  fault  of  Jones. 

271.  Bills  of  Lading  Which  May  Be  Transferred.  All 
bills  of  lading  and  warehouse  receipts  may  be  transferred,  but 
only  by  means  of  negotiable  receipts  can  the  owner  transfer  the 
property  and  title  in  the  goods  without  further  act.  If  a 
"straight"  bill  of  lading,  or  non-negotiable  document,  be  sold  and 
transferred,  the  buyer  does  not  thereby  secure  the  title  to  the 
goods.  The  bailee  may  still  deliver  them  to  the  original  con- 
signee, should  he  demand  them.  The  purchaser  of  such  a 
"straight"  receipt  may,  however,  protect  his  rights  by  notifying 
the  bailee  that  he  is  the  holder  of  the  document  of  title  and  has 
the  title'  to  the  goods.  After  such  notice  the  bailee  cannot, 
without  incurring  liability  to  the  latest  purchaser,  deliver  the 
goods  to  the  original  consignee. 

Common  carriers  have  at  times  sought  to  destroy  the  nego- 
tiable quality  of  order  bills  of  lading  by  marking  them  across  their 
face  "non- negotiable."  There  has  been  much  difference  of  opin- 
ion in  the  courts  of  the  various  states  regarding  the  effect  of  this 
practice.  Section  30  of  the  Uniform  Sales  Act  states  that  if 
by  its  form  the  receipt  was  negotiable  aside  from  these  words, 
it  will  continue  so  in  spite  of  them. 

272.  Rights  of  Purchaser  of  Negotiable  Bills.  The  pur- 
chaser of  a  negotiable  bill  of  lading  or  warehouse  receipt  receives 
the  right  to  demand  a  delivery  of  the  goods  by  the  bailee  in  whose 
custody  they  have  been  placed.  Furthennore,  he  not  only  takes 
the  title  in  the  goods  which  the  seller  has,  but  he  secures  a  valid 
title  if  he  be  a  purchaser  for  value  without  notice  even  though 
the  seller's  title  was  voidable.  He  can  not,  however,  acquire 
title  except  from  an  owner,  and  in  this  respect  his  rights  are  less 
than  those  of  a  buyer  of  negotiable  paper. 

EXAMPLE 

Senn,  a  wholesale  dealer,  shipped  merchandise  by  the  Bell  Central  Rail- 
road' to  Poor,  a  grocer  in  Muskegon,  who  had  misrepresented  his  assets  and 
financial  responsibility  to  Senn.  Senn  sent  the  bill  of  lading  in  the  form  of  a 
negotiable  receipt  to  Poor,  who  immediately  sold  it  to  Tyson,  an  innocent 


TRANSFER   BY    BILLS   OF    LADING  205 

purchaser,  for  value.  Before  this  sale  to  Tyson,  Senn  could  have  reclaimed  the 
goods  and  avoided  the  sale  to  Poor,  because  of  Poor's  fraud.  After  the  sale 
he  can  only  sue  Poor  for  fraud,  but  cannot  reclaim  the  goods  from  Tyson, 
who  alone  can  secure  them  from  the  railroad  company. 

273.     Limitations  of   Rights  of   Purchaser  Against  Bailee. 

Although  it  is  the  general  rule  that  the  purchaser  of  a  bill  of 
lading  has  the  right  to  receive  the  goods  themselves  from  the 
bailee,  he  cannot  receive  them  if  the  bailee  hasn't  the  goods  or  if 
the  shipper  was  not  the  true  owner.  If  the  bailee  never  had  the 
goods,  or  parted  with  them,  or  they  were  destroyed,  the  bailee  is 
answerable  in  damages.  If  the  seller  of  the  bill  of  lading  was 
not  the  true  owner  of  the  goods,  he  is  answerable  in  damages. 

REVIEW   QUESTIONS 

1.  White  ordered  from  Jones  in  Chicago  a  dozen  typewriters,  to  be 
charged  to  his  account.  Jones  wrote:  "Order  received  and  will  ship  at  once." 
Jones  then  delivered  the  typewriters  to  the  railroad,, but  in  the  bill  of  lading 
named  himself  as  consignee,  and  retained  the  bill  of  lading.  While  the  type- 
writers were  on  the  way  to  White,  Jones  stopped  them  and  sold  them  to  Lewis, 
delivering  the  bill  of  lading.  May  White,  claiming  that  the  goods  were  his 
property  from  the  moment  of  shipment  and  that  Jones  no  longer  had  title  to 
sell,  reclaim  the  goods  from  Lewis?     Why? 

2.  In  response  to  a  written  order  from  Bates,  Ames  shipped  goods 
consigned  to  the  order  of  Bates.  Ames  then  attached  the  bill  of  lading  to  a 
sight  draft  for  the  purchase  price  and  mailed  both  documents  to  Bates  with  a 
letter  requesting  Bates  to  pay  the  draft,  or  to  return  both  documents  at  once. 
Bates  did  not  pay  the  draft,  but  with  the  bill  of  lading  obtained  the  goods  from 
the  railroad  company  and  sold  them  to  Call  for  value.  Ames  attempts  to 
reclaim  the  goods  from  Call.  May  he  do  so?  May  Ames  recover  from  the 
railroad  company?     May  Ames  recover  from  Bates? 

3.  Murphy  was  a  lawyer  in  Milwaukee.  Logan  in  LaCrosse  sent  him 
a  typewriter  to  try  for  thirty  days  and  also  sent  him  for  examination  and  for  a 
legal  opinion  a  negotiable  bill  of  lading  for  some  apples  in  transit  from  St.  Paul 
to  LaCrosse.  The  bill  of  lading  was  indorsed  in  blank  by  Logan.  Murphy 
at  once  sold  both  the  typewriter  and  the  bill  of  lading  to  Jones,  an  innocent 
purchaser  for  value.  Both  Jones  and  Logan  now  claim  the  right  to^receive 
the  apples  from  the  railroad  company.  Who  is  entitled  to  the  apples?  May 
Logan  reclaim  the  typewriter  from  Jones?     Why? 

4.  If  Morrison  offered  to  sell  you  a  negotiable  bill  of  lading  made  to 
"Morrison,  or  order,"  as  the  consignee,  at  a  fair  price,  indorsed  by  him,  what 
further  inquiry,  if  any,  would  you  make  in  order  to  safeguard  your  rights? 
Would  you  pursue  any  different  course  if  the  bill  of  lading  were  in  the  form  of  a 
"straight"  receipt? 


206  TRANSFER   BY   BILLS  OF   LADING 

5.  Gordon  &  Co.  are  wholesale  grocers  in  Milwaukee.  Waters  is  a 
retail  merchant  in  Galena.  Waters  by  telephone  orders  ten  barrels  of  sugar 
at  $30  a  barrel  from  Gordon  &  Co.  to  be  shipped  to  him  in  two  weeks.  Gordon 
&  Co.  deliver  the  sugar  to  the  office  of  the  Northwestern  Railway  Company 
on  the  same  day  that  the  order  is  given  and  receive  a  bill  of  lading  with  Waters, 
or  order,  named  as  the  consignee,  which  they  retain.  While  the  sugar  is  still 
at  the  depot,  Gordon  &  Co.  are  declared  bankrupt  and  their  creditors,  through 
a  trustee,  claim  that  the  sugar  is  still  their  property.  Waters  also  claims  it. 
Who  has  title  to  the  sugar?     Why? 


i 


CHAPTER  XXVII 

WARRANTIES 

274.  A  warranty  is  a  statement  by  the  seller,  given  as  a  fact 
either  express  or  implied.  It  is  an  express  warranty  if  it  is  a 
statement  of  fact  made  at  the  time  of  or  before  the  sale,  which 
has  a  natural  tendency  to  induce  the  buyer  to  purchase  the 
goods,  and  upon  which  he  does  rely  in  purchasing  the  goods.  It 
is  not  a  condition  of  the  contract  which  must  be  performed  by 
the  seller  before  a  liability  arises  on  the  part  of  the  buyer  to  pay 
the  price,  but  it  is  in  the  nature  of  a  separate,  collateral  promise, 
and  if  broken  gives  rise  to  an  action  for  damages  for  its  breach. 

275.  Express  and  Implied  Warranties.  Warranties  may  be 
either  express  or  implied.  They  are  express  warranties  if  the 
seller  at  the  time  of,  or  prior  to,  the  sale  makes  statements  regard- 
ing the  thing  sold  which  are  inducements  to  the  other  party  to 
purchase  and  which  are  relied  upon  by  him.  They  are  implied 
warranties  if  they  are  not  made  by  express  language,  but  depend 
for  their  existence  upon  the  entire  surroundings  of  the  transac- 
tion and  the  general  nature  of  business  dealings  of  that  kind, 
being  then  implied  by  law  and  fact. 

^        EXAMPLES 

Condition  precedent.     Ames  makes  Bates  the  following  offer,  "For  $6000, 
I  will  build  you  an  automobile  which  will  run  60  miles  an  hour  on  the  track  at 
Ormond  Beach  when  you  try  it  out."     Bates  accepts  this  offer.     The  attain- 
ment of  this  speed  is  a  condition  precedent  to  any  liability  on  the  part  of  Bates 
,,   to  receive  the  automobile  as  his  property,  and  to  pay  for  it. 

W-  Express  Warranty.  Call  says  to  Dale,  "I  will  sell  you  this  horse  for  $125 
and  warrant  him  to  be  sound."  Dale  accepts  this  offer,  receives  the  horse  and 
pays  the  money.  The  horse  is  internally  diseased;  this  constitutes  a  breach 
of  an  express  warranty. 

Implied  "Warranty.  Egan  sells  and  delivers  to  Fair  a  threshing  machine 
at  a  fair  price.  It  later  develops  that  Gould  is  the  true  owner  of  the  machine 
and  he  reclaims  it  from  Fair,  who  may  then  sue  Egan  for  damages  for  breach 
of  an  implied  warranty,  the  warranty  which  such  a  seller  makes  by  implication 

Mr  207 


208  WARRANTIES 

that  at  the  time  of  the  sale  he  is  the  owner  and  has  title  to  the  property  sold. 
(The  selling  of  another's  goods  in  this  manner  also  constitutes  a  criminal 
offense,  the  taking  of  another's  goods  being  larceny  and  the  fraudulent  sale 
being  the  obtaining  of  money  under  false  pretenses.)     • 

276.  Nature  of  Express  Warranties.  To  be  a  warranty, 
the  statement  of  the  seller  must  be  the  affirmation  of  a  fact 
and  not  a  mere  statement  of  opinion.  Thus  a  statement  as 
to  the  value  of  the  thing  sold  is  not  a  warranty,  for  value  is 
always  a  matter  of  mere  opinion.  The  statement  must  also  be 
positive  and  not  a  mere  supposition. 

It  must  also  be  a  statement  of  such  a  nature  as  will  in  the 
ordinary  course  of  events  be  relied  upon  by  the  purchaser.  A 
purchaser  cannot  recover  for  damages  for  breach  of  a  warranty 
against  defects  which  he  knew  existed  at  the  time  of  the  sale, 
for  he  cannot  assert  truthfully  that  he  relied  on  the  warranty. 
Nor  can  he  recover  for  damages  for  breach  of  warranty  when 
there  was  no  warranty  but  he  relied  upon  independent  informa- 
tion as  to  the  character  of  the  thing  sold. 

If  a  warranty  is  made  at  the  time  of  the  original  contract  of 
sale,  it  is  supported  by  the  original  consideration  and  is  enforce- 
able by  the  buyer.  If  it  is  made  at  a  time  later  than  the  original 
sale  or  contract  to  sell  it  must  be  supported  by  a  new  considera- 
tion, or  it  will  not  be  enforceable. 

EXAMPLES 

1.  Jones  sells  to  Murphy  a  fire-prood  safe,  saying,  "That  safe  is  easily 
worth  S300,  for  I  am  told  that  it  will  withstand  any  fire  without  damage  to 
papers  which  it  contains."  Murphy  pays  $300  for  the  safe,  and  in  a  fire  later 
the  safe  is  damaged  so  that  many  valuable  papers  are  destroyed.  There  is  no 
breach  of  warranty,  for  the  statement  of  Jones  was  a  mere  matter  of  opinion. 

2.  Olson  sells  Herring  a  suit  of  clothes  and  warrants  that  it  is  all  wool 
and  will  not  "shoddy,"  the  promise  of  Olson  ak  to  the  quality  being  one  of  the 
inducements  that  leads  Herring  to  buy  the  suit.  Herring  suffers  a  detriment 
(the  payment  of  the  price  of  the  suit)  in  reliance  on  this  promise.  If,  therefore, 
the  suit  proves  to  be  not  all  wool.  Herring  is  damaged  upon  a  warranty  which 
is  supported  by  a  sufficient  consideration. 

3.  Ames,  a  hardware  dealer,  sells  Bates-a  bath-tub  and  installs  it  in  Bates' 
house.  A  month  later  Ames  says  to  Bates,  "That  was  a  fine  bath-tub  I  sold 
you;  it  will  not  discolor  in  ten  years."  Five  years  later  the  bath-tub  discolors, 
and  Bates  sues  Ames  for  breach  of  warranty.  In  this  case  Ames  has  a  good 
defense  in  that  the  alleged  warranty  was  not  supported  by  a  sufficient  consid- 
eration. 


WARRANTIES  209 

277.  Caveat  Emptor.  This  is  a  Latin  phrase  which  means, 
"Let  the  buyer  beware."  It  has  been  adopted  by  the  courts 
as  a  maxim  concerning  sales  in  general,  the  rule  which  it  rep- 
resents being  that  the  seller  is  not  liable  for  defects  which  the 
buyer  should  have  discovered  had  he  used  reasonable  care  in 
examining  the  article  bought.  The  effect  of  this  rule  is  to  throw 
the  risk  of  loss  on  the  buyer  in  case  he  fails  to  use  due  diligence. 
The  buyer  has  the  right,  however,  to  rely  upon  an  express 
warranty. 

In  consequence  of  this  rule  the  buyer  should  require  that  all 
doubtful  matters  be  covered  by  an  express  warranty.  He  may 
also  usually  rely  upon  the  implied  warranties  later  enumerated, 
though  in  the  sale  of  specific  articles  examined  by  the  buyer  there 
h  no  implied  warranty  except  as  to  the  title  of  the  seller. 

278.  Implied  Warranties.  There  are  two  general  classes  of 
implied  warranties.  There  are  (1)  warranties  of  title,  and  (2) 
warranties  of  quality.  • 

Warranties  of  Title.  In  early  law  there  was  no  implied 
warranty  as  to  the  title  of  the  seller,  but  it  is  today  everywhere 
recognized  that  by  the  very  act  of  selling  the  goods  the  seller 
represents  to  the  buyer  that  he  has  a  good  title,  and  if  it  later 
proves  that  he  had  not,  the  buyer  may  recover  damages  for 
breach  of  this  warranty.  This  is  true  in  aii  sales  except  when  the 
situation  of  the  seller  is  such  as  to  disprove  any  such  represen- 
tation. 

EXAMPLES 

1.  Dewey  sold  Burt  a  horse,  which  had  previously  been  stolen  from 
Dysart,  though  both  Dewey  and  Burt  were  ignorant  of  that  fact.  Upon  the 
reclaiming  of  the  horse  by  Dysart,  Burt  was  entitled  to  recover  damages  from 
Dewey.     Burt  vs.  Dewey,  40  N.  Y.  283. 

2.  Colby,  being  heavily  in  debt,  transferred  his  property  to  Ammidown 
as  a  trustee  to  distribute  it  among  his  creditors.  Ammidown  sold  the  property 
as  the  trustee  at  a  public  sale  to  Cohn,  who  on  discovering  that  Colby's  title 
had  been  defective  sued  Ammidown.  He  was  refused  recovery  for  the  reason 
that  no  personal  warranty  of  title  could  be  implied  against  Ammidown,  the 
particular  circumstances  of  the  sale  plainly  showing  that  he  did  not  intend  to 
assert  any  title  in  himself.     Cohn  vs.  Ammidown,  120  N.  Y.  398. 

Warranties  of  Quality.     The   rule   of  caveat  emptor  applies 
;enerally  to  prevent  a  warranty  of  quality.     There  are,  however, 


I 


210  WARRANTIES 

five  instances  in  which,  in  spite  of  this  rule,  the  law  creates  an 
implied  warranty  of  quality  on  the  part  of  the  seller.  These 
are:  (1)  When  the  goods  are  purchased  from  a  manufacturer 
there  is  an  implied  warranty  that  there  are  no  hidden  defects  in 
the  goods;  (2)  when  the  buyer,  relying  on  the  seller's  skill  and 
judgment,  orders  goods  for  a  stated  particular  purpose,  there  then 
is  a  warranty  that  the  goods  are  suitable  for  that  purpose; 
(3)  when  the  goods  are  ordered  by  description  only,  with  no 
opportunity  for  examination,  in  which  event  there  is  an  implied 
warranty  that  the  goods  are  reasonably  merchantable;  (4)  in 
sales  of  provisions  there  is  an  implied  warranty  that  they  are  fit 
for  food,  though  in  most  states  this  is  limited  to  sales  by  one  who 
is  ordinarily  a  dealer  in  such  commodities,  and  this  warranty  is 
not  applied  when  the  goods  were  open  to  ready  inspection  and 
their  condition  apparent  to  casual  examination;  and  (5)  in  sales 
by  sample  there  is  an  implied  warranty  that  the  goods  will 
correspond  to  the  sample. 

EXAMPLES 

1.  Randall  bought  from  Newson  a  buggy  and  a  pole  for  a  team  to  be  used 
with  it.  Because  of  a  defect  in  the  pole  the  team  became  frightened  and  ran 
away  causing  much  damage.  It  being  established  that  the  pole  was  neither 
reasonably  fit  nor  proper  for  the  use  for  which  it  was  ordered,  Randall  was 
allowed  damages  for  breach  of  an  implied  warranty  of  quality.  Randall  vs. 
Newson,  2  Q.  B.  (1877)  Eng.  102. 

2.  Drummond  sold  woolens  to  Van  Ingen  by  sample,  both  parties  know- 
ing that  Van  Ingen  intended  to  use  them  to  make  suitings.  The  goods  when 
furnished  were  according  to  the  samples,  but  were  wholly  unsuitable  and  not 
merchantable  as  suitings.  When  Drummond  sued  for  the  price  Van  Ingen 
recouped  for  damages  for  breach  of  an  implied  warranty.  Such  damages  were 
allowed  him,  the  fact  that  goods  were  sold  by  sample  not  changing  the  implied 
warranty  as  to  merchantability.  Drummond  vs.  Van  Ingen,  12  App.  Cas. 
(Eng.)  284. 

3.  Dounce,  who  was  not  a  manufacturer,  sold  Dow  a  quantity  of  pig  iron. 
Dow  was  an  iron  worker  and  could  have  tested  the  iron  easily,  but  did  not. 
Dow  used  the  iron  for  construction  purposes.  It  later  proved  to  be  very  brittle 
and  Dow  claimed  damages  for  breach  of  an  implied  warranty  of  merchant- 
ability. He  was  denied  recovery  because  Dounce,  not  being  a  manufacturer, 
could  not  be  presumed  to  have  known  the  precise  quality  of  the  iron  or  to  have 
warranted  it,  and  also  Dow,  by  using  the  iron,  waived  any  claim  which  he 
might  have  had.  Dounce  vs.  Dow,  64  N.  Y.  411.  In  this  case  the  doctrine 
of  caveat^emptor  was  applied. 


WARRANTIES  211 

4.  Bollett  saw  a  carcass  of  a  pig  hanging  in  the  shop  of  a  butcher  and 
bought  it.  Burnby  later  saw  it  and  inquired  the  price  of  the  butcher,  who 
informed  him  that  Bollett  was  the  owner.  Burnby  then  bought  it  of  Bollett, 
and  on  later  discovering  that  it  was  wormy  and  unfit  for  use,  sued  Bollett  for 
breach  of  an  implied  warranty.  He  was  denied  recovery  because  Bollett  was 
not  a  dealer  in  provisions  and  no  warranty  was  presumed.  Burnby  vs.  Bollett, 
16  M.  &  W.  (Eng.)  644. 

Note. —  This  is  the  general  rule,  although  a  warranty  of  wholesomeness 
is  implied  in  every  sale  of  provisions,  without  regard  to  the  occupation  of  the 
seller,  in  Michigan  and  New  York. 

REVIEW   QUESTIONS 

1.  Coon,  a  sewing  machine  agent,  sells  a  machine  to  Mrs.  Randall, 
telling  her  that  it  is  the  best  machine  on  the  market,  and  that  it  runs  so  easily 
that  it  will  practically  run  alone.  She  finds  later  that  the  machine  runs  harder 
than  other  makes,  and  does  not  work  well;  and  seeks  to  recover  damages  for 
breach  of  warranty.  Does  this  representation  of  the  agent  constitute  a  war- 
ranty?    Why? 

2.  Howe  bought  a  horse  from  a  dealer  who  guaranteed  him  to  be  gentle 
and  fit  for  any  lady  to  drive.  While  Howe  was  trying  the  horse  before  the 
sale,  the  horse  snapped  at  him  twice,  and  became  frightened  at  a  train.  May 
Howe  later  recover  from  the  dealer  on  his  warranty  if  it  turns  out  that  the  horse 
is  not  gentle  and  fit  for  ladies  to  drive?     Why? 

-3.  Frank  sold  a  carload  of  apples  to  Jeffreys,  nothing  being  said  at  the 
time  as  to  their  quality.  They  were  in  the  possession  of  Frank  at  the  time 
they  were  sold  and  each  party  had  ample  opportunity  to  inspect  them,  but  did 
not  do  so.  It  was  later  found  that  they  were  badly  rotted,  and  Jeffreys  sued 
for  damages  for  breach  of  an  implied  warranty  of  quality.  May  he  recover? 
Why? 

4.  Armour  &  Company's  Wholesale  Company  sold  a  quantity  of  soap 
to  Heyman  &  Company,  retail  merchants.  They  in  turn  sold  a  bar  of  this  soap 
to  Hasbrouck,  who  used  the  soap  and  because  a  needle  which  was  imbedded  in 
the  soap  scratched  his  hand,  contracted  blood  poison  and  was  ill  for  seven 
months.  May  he  recover  for  breach  of  an  jmplied  warranty?  If  so,  from 
whom,  and  for  what? 

5.  Smith  sold  Brown  an  improved  hayrack  which  he  had  made  according 
to  Brown's  specifications  for  a  particular  purpose.  Brown  resold  the  hayrack 
to  Jenkins,  who  resold  it  to  Ordway.  Subsequently  Brown  repurchased  the 
hayrack  of  Ordway  and  then  for  the  first  time  discovered  that  it  was  not  at  all 
suited  for  the  purpose  for  which  he  had  ordered  it.  He  sued  Smith  at  once  for 
damages  for  breach  of  warranty.     May  he  recover?     Why? 


CHAPTER  XXVIII 
REMEDIES   OF  PARTIES 

279.  Remedies  of  Seller.  One  who  contracts  to  sell,  or  who 
sells  goods,  has  certain  well-defined  remedies  for  wrongful  acts 
of  the  buyer.  These  are  of  two  kinds  —  primary  and  secondary 
remedies.  The  primary  remedies  are  (1)  recovery  of  the  sale 
price,  and  (2)  recovery  of  damages  for  wrongful  refusal  of  the 
buyer  to  accept  the  goods.  These  primary  remedies  rest  upon 
personal  rights  of  the  seller  against  the  buyer  and  are  enforced 
by  means  of  a  suit  against  him. 

The  secondary  remedies  of  the  seller  rest  upon  rights,  not 
against  the  buyer  personally,  but  against  the  goods  themselves. 
They  are  four  in  number,  being  (1)  right  of  lien;  (2)  right  of 
stoppage  in  transit;  (3)  right  of  resale,  and  (4)  right  of  rescinding 
the  contract. 

280.  Recovery  of  the  Price.  When  the  property  in  goods 
has  been  transferred  to  the  buyer,  the  seller  may  recover  the 
contract  price.  Similarly,  if  the  buyer  unreasonably  refuses  to 
receive  goods  covered  by  a  contract  of  sale,  when  the  seller 
tenders  them  to  him,  the  seller  may  sue  at  once  for  the  price. 

EXAMPLES 

1.  Solomon  contracted  to  buy  of  White  a  manikin  for  $35,  $10  to  be  paid 
when  the  manikin  was  delivered  at  the  express  company's  office  and  $5  every 
nronth  thereafter  until  the  whole  was  paid.  White  delivered  the  manikin 
to  the  express  company,  but  Solomon  refused  to  receive  it.  White  sued  and 
recovered  the  whole  price,  although  the  parties  had  stipulated  in  their  contract 
that  title  should  not  be  transferred  until  the  whole  price  was  paid.  The  seller 
had  performed  all  his  conditions  and  the  wrongful  total  breach  by  the  buyer 
gave  rise  to  a  right  in  the  seller  to  recover  the  whole  price  at  once.  White  vs. 
Solomon,  164  Mass.  516. 

2.  Putnam  sold  a  pair  of  horses  to  Glidden  and  delivered  them  at  Glid- 
den's  barn.  Glidden  refused  to  accept  them,  claiming  a  defect.  Putnam 
sued  Glidden  for  the  price.  Recovery  of  the  price  was  allowed,  Glidden 
failing  to  prove  any  defect.     Putnam  vs.  Glidden,  159  Mass.  47. 

212 


.      REMEDIES   OF    PARTIES  '  213 

281.  Recovery  of  Damages.  On  a  refusal  by  the  buyer  to 
perform  his  contract,  the  seller  may  elect  to  retain  the  goods  and 
recover  the  money  damages  which  he  has  suffered  by  reason  of 
the  buyer's  refusal.  The  amount  of  these  damages  is  the 
difference  between  the  market  value  of  the  goods  and  the  contract 
price.  This  difference  represents  the  profit  to  which  the  seller 
was  entitled  by  his  contract.  If  the  goods  sold  have  no  market 
price,  the  seller  is  entitled  to  the  actual  damages  which  he  has 
suffered  by  reason  of  the  refusal  of  the  buyer  to  perform.  This 
may  in  some  instances  be  merely  the  outlay  which  the  seller  has 
made  in  preparing  to  perform;  in  others  it  may  be  the  entire 
price  of  the  goods. 

EXAMPLE 

Allen  ordered  from  Funke  twenty  toilet  sets,  at  a  stated  price,  the  order 
being  in  writing  and  accepted  by  Funke's  salesman.  Later  Allen  cancelled 
this  order.  Funke  was  allowed  to  recover  the  difference  between  the  contract 
price  and  the  market  price  of  these  goods.     Funke  vs.  Allen,  54  Neb.  407. 

282.  A  seller's  right  of  lien  is  the  right  of  the  seller  of  goods 
to  retain  possession,  even  after  title  has  been  transferred  to  the 
buyer,  as  security  for  payment  of  the  price.  This  right  is  lost 
if  the  goods  are  delivered  to  the  buyer,  and  the  seller's  remedies 
are  thereafter  limited  to  the  primary  rights  discussed  in  the  two 
preceding  sections.  This  right  of  lien  is  seldom  exercised  except 
when  the  seller  suspects  insolvency  or  bad  faith  on  the  part  of 
the  buyer. 

EXAMPLE 

Ames  sells  goods  to  Bates  for  $500  to  be  delivered  one  month  hence,  the 
50ods  being  specified  and  in  existence.  The  risk  of  loss  and  all  other  incidents 
af  ownership  are  transferred  at  once  to  Bates,  but  Ames  retains  the  right  to 
keep  the  goods  until  the  purchase   price  is  paid.     This  is  his  right  of  lien. 

283.  Stoppage  in  Transit.  Although  the  seller  loses  this 
lien  the  moment  the  goods  pass  from  his  possession,  he  is  allowed 
to  re-establish  this  lien  and  regain  possession  in  some  cases  when 
the  goods  are  in  the  hands  of  a  common  carrier  for  shipment  to 
the  buyer.  If  after  shipment  has  been  made  the  buyer  becomes 
insolvent,  the  seller  may  regain  possession  of  the  goods  by 
notifying  the  carrier  not  to  deliver  them  to  the  bu^^er  but  to  hold 
them  for  him.  The  right  to  do  this  is  the  right  of  stoppage  in 
[transit.     If  the  notice  is  given  before  the  carrier  has  delivered 


I 


214  REMEDIES   OF   PARTIES 

the  goods,  the  seller  regains  his  right  of  lien,  though  he  then  must 
pay  the  transportation  charges.  If  the  goods  are  represented 
during  transit  by  a  negotiable  receipt,  the  carrier  is  under  no 
duty  to  redeliver  the  goods  until  this  has  been  surrendered.  The 
right  of  stoppage  in  transit  is  therefore  lost  when  a  negotiable 
receipt  has  passed  into  the  hands  of  an  innocent  purchaser  for 
value,  for  he  thereby  becomes  the  owner  of  the  goods  and 
entitled  to  possession  on  demand. 

EXAMPLE 

Eveleth  sold  logs  to  Ware  and  delivered  them  to  a  log  booming  and 
driving  company  to  be  floated  down  the  Kennebec  river  to  Ware's  mills. 
While  the  logs  were  in  the  possession  of  the  driving  comp>any,  Ware  became 
insolvent  and  transferred  his  property  in  the  logs  to  Johnson,  a  trustee,  to  hold 
for  Ware's  creditors.  Eveleth  rightfully  reclaimed  the  logs  and  retained  them 
by  his  re-established  Hen  for  the  purchase  price.  Johnson  vs.  Eveleth,  93 
Me.  306. 

284.  Right  of  Resale.  After  the  making  of  a  contract  of 
sale,  if  the  buyer  without  cause  fails,  for  an  unreasonable  length 
of  time,  to  pay  the  price  and  accept  the  goods,  the  seller  may 
resell  the  goods  to  another.  In  so  doing  he  really  acts  as  the 
agent  of  the  buyer,  in  whom  the  title  rests,  and  makes  the  resale 
merely  to  realize  upon  his  lien  for  the  unpaid  purchase  price. 
No  notice  of  such  resale  need  be  given  to  the  defaulting  buyer. 
If  upon  the  resale  the  amount  realized  is  insufficient  to  compen- 
sate the  seller  for  the  original  purchase  price,  he  may  then  sue 
the  original  buyer  for  the  difference,  which  will  be  the  measure  of 
his  damages  because  of  the  buyer's  wrongful  refusal  or  neglect. 
It  also  is  a  logical  conclusion  that  if  the  resale  is  for  a  greater 
sum  than  the  original  price,  the  excess  belongs  to  the  original 
buyer,  though  this  case  has  never  been  presented  to  the  courts. 

EXAMPLE 

Wrigley  sold  Cornelius  10,000  world's  fair  pictures  at  15  cents  each  and 
delivered  6,000  of  them.  Cornelius  refused  to  accept  the  balance  and  Wrigley 
sold  them  to  another  person  for  10  cents  each  and  sued  Cornelius  for  the 
difference.  He  was  allowed  to  recover  this  amount  as  damages  for  the  wrong- 
ful refusal  of  Cornelius  to  perform  the  contract  of  sale.  Wrigley  vs.  Cornelius,  ; 
162  111.  92.  I 

285.  Rescinding  the  Sale.     Upon  the  refusal  of  the  buyer  ; 
to  complete  his  contract,  the  seller  may  rescind  the  sale  and  keep  i 


REMEDIES  OF   PARTIES  215 

the  goods  as  his  own  in  satisfaction  of  his  damage.  If  the  value 
of  the  goods  be  less  than  the  damage  he  has  suffered,  he  may  also 
sue  for  the  excess.  In  cases  where  the  buyer  has  committed  a 
fraud,  the  seller  may  recover  the  goods  even  though  they  have 
been  delivered  to  the  buyer,  for  fraud  makes  transfers  of  property 
voidable. 

EXAMPLE 

Ackerman  sold  Rubens  some  goods,  and  while  they  were  still  in  the 
possession  of  the  seller,  the  purchase  price  being  unpaid,  the  buyer  notified 
Ackerman  that  he  had  changed  his  mind  and  did  not  wish  the  goods.  Acker- 
man  immediately  sued  for  the  difference  between  the  contract  price  and  the 
market  value  of  the  goods.  This  he  was  allowed  to  recover,  retaining  the 
goods  as  his  own.     Ackerman  vs.  Rubens,  167  N.  Y.  750. 

The  following  clear  statement  of  the  rights  of  the  unpaid  seller  is  made  in 
the  above  case.  "When  the  buyer  of  personal  property,  under  an  executory 
contract  of  sale,  refuses  to  complete  his  purchase,  the  seller  may  keep  the  article 
for  him  and  sue  for  the  entire  purchase  price;  or  he  may  keep  the  property  as 
his  own  and  sue  for  the  difference  between  the  market  value  and  the  contract 
price,  or  he  may  sell  the  property  for  the  highest  sum  he  can  get,  and,  after 
crediting  the  net  amount  received,  sue  for  the  balance  of  the  purchase  money." 

286.  Remedies  of  the  Buyer.  The  remedies  of  the  buyer 
for  wrongful  breach  of  the  contract  of  sale  by  the  seller  are  of  two 
general  types,  depending  upon  whether  or  not  titlfe  to  the  goods 
has  been  transferred.  If  the  title  has  been  transferred  and  the 
seller  wrongfully  refuses  to  carry  out  the  terms  of  the  contract, 
as  by  delivering  possession,  the  buyer  may  either  recover  the 
goods  or  their  money  value.  If  title  has  not  been  transferred 
he  can  recover  the  amount  of  the  damage  which  he  has  suffered 
by  the  breach  of  the  seller,  which  is  usually  the  difference  between 
the  contract  price  and  the  market  price  at  the  time  of  delivery, 
together  with  other  expenses  which  the  buyer  has  incurred  in 
reliance  upon  the  contract  of  sale. 

EXAMPLES 
1.  Abraham  contracted  to  purchase  from  Karger  a  quantity  of  goods 
ored  in  a  warehouse  subject  to  Karger's  order,  for  the  sum  of  S2500.  Abra- 
ham later  tendered  to  Karger  this  amount  of  money,  but  Karger  refused  to 
make  delivery  and  offered  to  pay  the  difference  between  this  sum  and  the 
market  price  of  the  goods.  Instead  of  accepting  this,  Abraham  brought  an 
action,  called  replevin,  to  recover  the  particular  goods  as  his  own  property, 
and  this  he  was  allowed  to  do,  it  being  deemed  that  title  had  passed  and  that  on 
the  tender  of  the  purchase  price  Karger  was  no  longer  entitled  to  retain  even 
the  possession  of  the  goods  for  his  lien.     Abraham  vs.  Karger,  100  Wis.  387. 


216  REMEDIES  OF   PARTIES 

2.  Walters  contracted  to  buy  of  Simpson  a  certain  lot  of  hardwood 
lumber,  to  be  delivered  in  thirty  days,  at  a  specified  price.  Simpson  instead 
sold  this  lumber  to  Jordan  at  an  advanced  price.  Walters  will  be  allowed  to 
recover  the  difference  between  the  price  he  agreed  to  pay  and  the  market 
value  of  the  goods,  and  the  amount  which  Jordan  paid  will  be  evidence  of  this 
market  value. 

287.  Remedies  for  Breach  of  Warranty.  There  has  been 
much  disagreement  among  the  several  states  regarding  the  rights 
of  a  buyer  for  a  breach  of  warranty  by  the  seller.  They  have 
uniformly  agreed  that  the  buyer  may  always  recover  the  damage 
which  the  breach  of  warranty  has  caused  him,  and  some  states 
have  allowed  the  buyer  to  rescind  the  sale  and  return  the  goods 
as  well.  The  uniform  sales  act,  Section  69,  adopts  the  latter  of 
these  views.  It  permits  the  buyer  to  refuse  the  goods  if  title 
has  not  been  transferred,  or  if  title  has  passed,  to  may  rescind 
the  contract,  return  the  goods  and  sue  for  damages,  upon  the 
discovery  of  a  breach  of  warranty.  Or  he  may  keep  the  goods 
and  sue  for  damages  resulting  from  the  breach  of  warranty, 
which  would  be  measured  by  the  difference  in  value  of  the  goods 
actually  received  and  goods  such  as  the  seller  represented  them 
to  be. 

REVIEW    QUESTIONS 

1.  Bates  shipped  goods  to  Ames  by  railroad  in  compliance  with  an 
order,  and  took  from  the  carrier  a  bill  of  lading  to  Ames,  or  order.  He  sent 
the  bill  of  lading  to  Ames,  who  indorsed  it  and  sold  it  to  Call  for  value.  Before 
the  goods  reached  their  destination  Bates  discovered  that  Ames  was  insolvent 
and  sought  to  exercise  the  right  of  stoppage  in  transit.  May  he  do  this? 
Why? 

2.  Maxon  sells  goods  to  Williams,  to  be  delivered  in  thirty  days,  the  price 
to  be  paid  at  once.  Williams  fails  to  pay  the  price  and  Maxon  notifies  Wil- 
liams that  he  intends  to  hold  the  goods  for  his  lien.  Thereafter  and  before 
the  thirty  days  have  elapsed,  the  goods  are  destroyed.  Who  bears  the  loss? 
Why?     May  Maxon  recover  the  purchase  price  from  Williams?     Why? 

3.  A  sells  goods  to  B  and  delivers  them  to  a  carrier  for  shipment  to  B, 
receiving  a  straight  bill  of  lading  naming  B  as  the  consignee.  B  is  insolvent 
at  the  time  of  the  sale,  but  A  remains  ignorant  of  that  fact  until  the  goods  have 
arrived  at  their  place  of  destination.  A  orders  the  goods  stopped  when  they 
are  on  the  railroad's  trucks  ready  to  be  taken  to  B's  place  of  business.  A  then 
receives  the  goods  and  sells  them  at  private  sale  without  giving  any  notice  to  B. 
Has  B  any  remedies?  What?  Why?  Suppose  that  A  received  more  for 
the  goods  than  B  had  agreed  to  pay.     Would  this  make  any  difference?     Why? 


REMEDIES  OF   PARTIES  217 

4.  Cox  contracts  to  sell  Adams  150  cases  of  shoes  to  be  manufactured 
according  to  specifications  furnished  by  Adams.  When  50  cases  have  been 
completed,  Adams  notifies  Cox  that  he  does  not  want  any  of  the  shoes  and 
will  not  accept  them.  Cox  proceeds  with  the  manufacture  and  completes 
the  150  cases  and  offers  to  deliver  them,  but  Adams  refuses  to  accept  them. 
May  Cox  recover  any  damages?  If  so,  what  will  be  the  measure  of  his  dam- 
ages?    Why? 

5.  Ames,  a  dealer  in  Madison,  orders  furniture  from  Bates,  a  wholesaler 
in  Grand  Rapids.  When  the  furniture  arrives  in  Madison,  Ames  discovers 
that  it  is  defective  in  several  particulars  and  differs  materially  from  the  furni- 
ture described  in  the  catalogue  from  which  he  ordered  it.  Bates  refuses  to  take 
it  back.     Enumerate  the  rights  of  Ames. 


CHAPTER  XXIX 


BAILMENTS 


I.  For  Benefit  of  Bailor  < 

II.  For  Benefit  of  Bailee 
(1.   Pledge 


fl  Deposit 
I2.  Mandate 


III.  For  benefit 
of  Both 


a.  For  use  ■ 

9     HirA^^-  ^°^  repairing,  etc. 

[d.   For  carriage 

INVOLVE 


IV.  Exceptional  Bailments<ri      S 


.ers 


288.  Definition.  A  bailment  is  a  contract  relation  resulting 
from  the  delivery  of  personal  property  by  the  owner,  called  the 
bailor,  in  trust  to  a  second  person,  called  the  bailee,  for  a  specific 
purpose  other  than  a  sale,  upon  the  accomplishment  of  which 
the  property  is  to  be  dealt  with  according  to  the  owner's  direction. 

In  the  study  of  bailments  we  shall  therefore  discuss  the  law 
relating  to  the  borrowing,  lending,  hiring,  the  storing  of  goods  for 
safe-keeping,  the  possession  of  goods  by  one  doing  work  on  them, 
and  also  their  transportation  by  a  common  carrier  or  private 
carrier. 

Any  personal  property  may  be  the  subject  of  a  bailment. 
The  delivery  necessary  to  constitute  one  a  bailee  may  be  either 
actual,  constructive,  or  by  operation  of  law.  The  delivery  of  a 
watch  to  a  jeweler  for  repair,  of  a  horse  to  a  smith  to  be  shod,  or  of 
a  package  to  an  expressman  to  be  carried,  are  familiar  examples 
of  actual  delivery.  The  delivery  of  a  key  to  a  warehouse  may  be 
the  constructive  delivery  of  the  goods  therein.  The  holder  of 
lost  goods  or  of  goods  that  have  been  seized  under  legal  process 
is  a  bailee  by  operation  of  law. 

218 


BAILMENTS  219 

289.  Importance.  When  personal  property  is  delivered 
by  a  bailor  to  a  bailee,  certain  duties  are  created  on  the  part  of 
the  bailee.  Among  these  are  the  duty  of  returning  the  goods 
to  the  owner,  or  some  other  person  designated  by  him,  when  the 
purpose  of  the  bailment  is  satisfied;  and  the  duty  of  preserving 
them  during  the  existence  of  the  bailment  with  varying  degrees 
of  care,  depending  upon  the  nature  of  the  bailment.  As  goods 
are  often  in  the  hands  of  bailees  —  warehousemen,  inn-keepers, 
common  carriers,  and  the  like  —  as  a  part  of  ordinary  commercial 
transactions,  the  subject  is  of  the  utmost  practical  importance. 

290.  Kinds  of  Bailment.  The  subject  of  Bailment  is  divided 
into  four  general  classes,  based  upon  the  nature  or  character  of  the 
relation  between  the  bailor  and  the  bailee.  These,  with  their 
sub-divisions,  are : 

I.     Bailment  for  the  sole  benefit  of  the  bailor.  • 

(1)  Deposit,  when  the  property  is  to  be  kept  by  the 

bailee   without   charge,  and    is    to    be    later 
returned  to  the  bailor. 

(2)  Mandate,  or  Commission,  when  the  bailee  is  to 

perform  work  on  the  goods  without  charge, 
and  to  return  them. 
II.     Bailment  for  the  sole  benefit  of  the  bailee,  as  when 
property  is  loaned  by  the  bailor  to  the  bailee 
without  compensation. 
III.     Bailment  for  the  benefit  of  both  bailor  and  bailee. 

(1)  Pledge,  or  Pawn,  when  property  is  deposited  as 

security  for  the  payment  of  a  debt,  or  the 
performance  of  some  obligation. 

(2)  Hiring,  which  may  be  (1)  Hiring  a  thing  to  use; 

(2)  hiring,  or  employing,  work  to  be  done  on  a 
thing;  (3)  hiring,  or  employing,  one  to  care  for 
a  thing;  and  (4)  hiring  the  carriage  of  a  thing 
from  place  to  place. 
IV.     Exceptional  bailments  involve: 

(a)  Inn-keepers, 

(b)  Common  Carriers. 

291.  Degrees  of  Care.  As  soon  as  a  bailee  receives  prop- 
erty, he  should  have  a  clear  understanding  of  the  degree  of  care 


220  BAILMENTS 

which  is  expected  of  him,  so  that  he  may  know  how  to  be  held 
blameless  if  the  property  is  lost  or  damaged.  Because  of  the 
varying  nature  of  the  relation  of  the  parties  to  a  bailment, 
three  degrees  of  required  care  have  been  established.     These  are: 

Kind  of  Bailment  Care  Required  ^^c^  ^fi'SfLiab/r 
For  benefit  of  bailor                      Slight  Gross 

For  benefit  of  bailee  Great  Slight 

For  mutual  benefit  Ordinary  Ordinary 

By  ordinary  care  is  meant  that  degree  of  care  which  the  aver- 
age reasonable  and  prudent  man  in  a  similar  situation  would 
exert;  by  slight  care,  that  degree  of  care  that  a  man  of  common 
sense,  however  careless,  absent-minded  and  inattentive,  applies 
to  his  own  affairs;  and  by  great  care,  such  care  as  one  who  had 
insured  the,  property  might  exert,  or  that  degree  of  care  which  a 
man  remarkably  exact  and  thoughtful  gives  his  own  property. 

BAILMENTS  FOR  BENEFIT  OF  BAILOR 

292.  Deposit  is  a  delivery  of  goods  to  another  to  be  kept  and 
returned  without  recompense.  A  distinction  is  drawn  between 
the  ordinary  deposit  of  money  in  a  bank,  subject  to  be  withdrawn 
by  check,  and  a  deposit  within  this  definition.  The  relation 
between  the  bank  and  the  depositor  is  that  of  creditor  and  deb- 
tor, as  the  identical  funds  which  are  deposited  are  not  to  be 
returned,  but  merely  an  equivalent  amount  of  money,  upon 
demand.     This  is  not  a  bailment. 

EXAMPLES 

1.  Smith  took  a  package  of  bonds  to  a  bank  for  safe- keeping,  leaving 
them  with  the  cashier.  This  was  a  special  deposit,  without  compensation 
by  either  party,  and  Smith  was  entitled  to  demand  and  receive  the  return 
of  the  bonds  at  any  time.     Smith  vs.  First  National  Bank,  99  Mass.  605. 

2.  Stewart,  a  traveler,  in  passing  through  a  city,  stopped  for  a  few  hours, 
and  not  wishing  to  be  burdened  by  his  suit-case,  left  it  with  a  clerk  in  a  drug- 
store. The  accommodation  was  given  without  expectation  of  pay,  and  was 
a  deposit  for  the  benefit  of  Stewart  solely.     Stewart  vs.  Head,  70  Ga.  449. 

293.  Bailment  for  Mandate  or  Commission  is  that  class  of 
bailment  in  which  the  bailee  undertakes  to  do  something  for  the 
bailor  with  reference  to  the  thing  bailed,  without  compensation. 
In  deposit,  the  principal  thing  is  the  keeping,  but  in  commission 
it  is  the  work  to  be  done.     The  word  commission,  in  the  sense  in 


BAILMENTS  221 

which  it  is  used  here,  is  not  like  the  commission  or  fee  allowed 
to  a  broker  on  a  sale  of  goods,  but  consists  wholly  in  the  doing 
(committing)  of  some  act  or  service  on  the  subject  matter  at  the 
direction  of  the  bailor,  without  reward  for  the  service. 

EXAMPLES 

1.  Taylor  offered  to  carry  money  for  Colyar  to  another  town  and  to 
deliver  it  to  Marlow,  but  finding  it  inconvenient  to  make  the  trip,  gave  the 
money  to  a  neighbor,  who  undertook  to  carry  it  and  deliver  it  as  requested  by 
Colyar.  The  neighbor,  however,  had  his  pocket  picked  while  in  a  crowd. 
Colyar  sued  Taylor  for  the  money  and  was  allowed  to  recover,  Taylor  having 
been  guilty  of  gross  negligence  in  violating  the  terms  of  the  bailment,  and  givinig 
the  money  to  another  person  to  carry.     Colyar  vs.  Taylor,  41  Tenn.  372. 

2.  Gill  asked  Middleton,  a  watchmaker,  to  examine  his  watch  and 
make  such  repairs  as  were  necessary.  Middleton,  out  of  friendship,  offered  to 
do  this  and  to  perform  the  necessary  repairs  without  charge.  Before  Gill 
called  for  it,  the  watch  was  injured  without  fault  of  Middleton.  The  bailment 
was  a  commission,  and  Middleton  was  not  liable  for  the  damage  caused  Gill. 
Gill  vs.  Middleton,  105  Mass.  477. 

294.  Rights  and  Duties  of  the  Parties.  Formerly  the  two 
bailments  of  deposit  and  mandate  were  treated  separately,  but 
the  same  sort  of  custody  and  service  are  actually  involved  in  the 
two  types,  and  consequently  the  obligations  of  the  parties  to  each 
other  are  subject  substantially  to  the  same  rules.  The  only 
difference  is  one  of  emphasis.  In  deposits  custody  is  the  chief 
purpose,  and  the  performance  of  an  act  is  incidental.  In  man- 
dates the  service  is  primary,  and  custody  is  the  incidental  feature. 

Diligence.  In  bailments  for  the  benefit  of  the  bailor,  it  is 
the  duty  of  the  bailee  to  take  reasonable  care  of  the  goods.  As 
he  receives  no  benefit,  the  care  required  to  free  him  from  respon- 
sibility is  slight,  and  he  is  liable  only  in  the  event  that  he  be 
guilty  of  gross  negligence.  Reasonable  care  depends  on  the 
nature  and  value  of  the  goods,  and  the  circumstances  of  the 
particular  transaction. 

EXAMPLES 

1.  Foster  deposited  a  cask  of  gold  of  the  value  of  $50,000  with  the  Essex 
Bank  for  safe-keeping.  This  was  stolen  by  the  bank's  cashier  and  chief  clerk, 
together  with  a  considerable  amount  of  the  assets  of  the  bank.  Foster  sued 
the  bank,  but  was  denied  recovery  on  the  ground  that  the  bank  had  used  the 
same  care  to  preserve  his  property  as  it  had  taken  with  its  own  money,  and 
that  this  was  a  reasonable  care  under  the  circumstances.  Foster  vs.  Essex 
Bank,  17  Mass.  479. 


222  BAILMENTS 

2.  Knowles  was  notified  by  a  railroad  company  that  a  shipment  of 
hay  had  arrived  for  him.  He  acknowledged  its  receipt,  paid  the  freight 
and  asked  that  as  a  matter  of  accommodation  it  be  left  in  the  car  for  a  few  days. 
The  car  was  side-tracked  onto  a  wharf  which  two  days  later  broke  down 
because  it  was  over-loaded  and  precipitated  the  hay  in  the  river.  When 
Knowles  sued  for  damages  he  was  denied  recovery,  it  being  decided  that  the 
railroad  had  ceased  to  be  a  common  carrier  as  to  him  and  was  a  mere  deposi- 
tary, and  that  it  had  not  been  guilty  of  gross  negligence.  Knowles  vs.  Atlan- 
tic etc.  R.  R.  Co.,  38  Me.  234. 

Ordinarily  such  a  bailee  is  responsible  only  when  he  does  an 
act  improperly  or  an  improper  act  regarding  the  thing  bailed, 
but  is  not  liable  for  failing  to  do  an  act  which  an  owner  exercising 
great  care  of  his  own  prof)erty  might  have  performed. 

EXAMPLES 

1.  Thorne  asked  the  permission  of  Deas  to  leave  a  vessel  at  his  wharf, 
and  Deas  volunteered  to  place  insurance  upon  it,  but  failed  to  do  this.  The 
vessel  was  injured  and  Thorne  sued  Deas  for  his  loss,  but  was  denied  recovery, 
as  the  bailment  was  a  mandate,  and  Deas  could  not  be  held  liable  for  failing 
to  perform  an  act,  though  had  he  done  an  act  with  negligence  he  would  have 
been  liable.     Thorne  vs.  Deas,  4  Johns.  (N.  Y.)  84. 

2.  A  guest  at  a  hotel  requested  the  clerk  to  receipt  and  care  for  a  regis- 
tered letter  which  he  was  in  expectation  of  receiving.  The  letter,  containing 
$100,  was  delivered,  receipted  for  and  placed  in  the  letter  box  of  the  hotel, 
from  which  it  was  stolen.  It  was  shown  that  the  hotel  letter  box  was  an 
unsafe  place  to  leave  letters,  and  the  clerk  and  proprietor  of  the  hotel  were 
forced  to  pay  the  guest  for  the  damage  he  had  suffered,  they  having  performed 
an  act,  which  they  undertook  to  dp,  and  one  which  required  special  care,  in  a 
grossly  negligent  manner.     Joslyn  vs.  King,  27  Neb.  38. 

Right  to  Use.  Any  use  •  of  the  article  bailed  by  the  bailee 
would  change  the  deposit  or  mandate  to  the  form  of  bailment 
for  the  mutual  benefit  of  the  parties.  Only  such  use,  therefore, 
as  is  incidental  to  the  proper  preservation  of  the  thing,  is  allowed. 
If  the  bailee  uses  the  thing  other  than  in  this  manner,  not  only 
does  the  bailment  become  one  of  mutual  benefit  demanding  a 
greater  degree  of  care,  but  the  bailee  who  wrongfully  uses  such  an 
article  becomes  absolutely  liable  for  any  damage  which  may  be 
done  to  it. 

EXAMPLE 

Preston  deposited  $12,000  in  U.  S.  bonds  with  the  bank  conducted  by 
Prather,  for  safe  keeping.     Subsequently,  Preston  secured  a  loan  of  a  large 


BAILMENTS  223 

amount,  leaving  these  bonds  as  security.  The  bonds  were  later  stolen  by 
Prather's  cashier,  whom  Prather  had  every  reason  to  believe  was  dishonest, 
he  having  a  short  time  before  been  discovered  in  a  gross  irregularity  in  his 
books.  It  was  admitted  that  Prather  had  not  been  guilty  of  gross  negligence, 
but  merely  of  a  want  of  ordinary  care.  Preston  was  allowed  to  recover  dam- 
ages for  the  loss,  the  deposit  having  been  changed  to  a  bailment  for  mutual 
benefit,  and  as  such  a  lack  of  ordinary  care  was  sufficient  to  make  Prather 
liable.     Preston  vs.  Prather,  137  U.  S.  604. 

Redelivery  of  Property.  In  bailments  for  the  benefit  of  the 
bailor,  the  bailee  has  nothing  to  gain  by  the  "continuance  of  the 
relation,  and  consequently  the  bailor  may  terminate  it  at  any 
time  and  demand  a  return  of  his-  property.  He  must  allow  a 
reasonable  time  for  redelivery  and  cannot  put  the  bailee  under 
any  liability  to  incur  any  expense  in  making  the  return.  The 
same  privilege  of  terminating  the  relation  belongs  to  the  bailee. 
He  must,  however,  like  any  other  bailee,  make  redelivery  to  the 
right  party  at  his  peril.  If  he  should  deliver  it  to  the  wrong 
party  he  is  liable  for  damages. 

Ordinarily,  readiness  on  the  part  of  the  bailee  to  return  the 
property,  in  case  of  bailment  for  the  benefit  of  the  bailor,  is 
sufficient. 

A  bailee  has  a  lien  upon  the  goods  bailed,  for  the  collection 
of  reasonable  or  agreed  expenses  incurred  by  him  in  the  keeping 
of  the  thing  bailed. 

EXAMPLE 

1.  Wear  suedGleason  to  recover  the  value  of  a  trunk  left  atGleason's  hotel 
by  one  of  Wear's  traveling  salesmen.  It  appeared  that  the  salesman  had 
asked  permission  to  leave  the  trunk  for  his  own  convenience  and  that  later 
Gleason  had  delivered  the  trunk  to  a  third  person,  unknown  to  him,  who  called 
and  requested  its  delivery,  making  no  effort  to  find  whether  the  claim  to  the 
property  was  based  on  any  right.  It  developed  that  the  third  person  was  a 
thief.  Wear  was  allowed  to  recover  the  value  of  the  trunk  and  its  contents 
from  Gleason.     Wear  vs.  Gleason,  52  Ark.  364. 

2.  A,  for  reasons  of  his  own,  desired  B  to  see  a  valuable  picture  owned  by 
C.  He  borrowed  the  picture  of  C  and  sent  it  by  a  son  of  B's,  to  B's  house, 
where  it  was  placed  on  a  mantel,  without  the  knowledge  of  B.  The  picture 
was  injured  by  heat  from  the  fire  in  the  grate  and  C  sued  B  for  the  damage 
to  the  picture.  His  right  to  recover  damages  was  denied,  although  it  was 
admitted  that  to  place  a  picture  in  this  place  was  gross  negligence.  This  was 
because  no  one  can  be  made  to  assume  the  responsibility  of  a  bailee  without 
his  consent.     Lethbridge  vs.  Phillips,  3  E.  C.  L.  (Eng.)  523. 


224  BAILMENTS 

REVIEW   QUESTIONS 


I 


1.  Bernara  agreed  as  a  matter  of  accommodation  to  remove  some 
sugar  and  cider  belonging  to  Coggs  from  one  cellar  to  another.  He  removed 
the  sugar,  but  set  it  down  in  a  wet  place,  where  it  was  ruined.  He  refused  to 
move  the  cider  at  all,  and  Coggs  was  compelled  to  pay  $30  to  get  this  removed 
on  account  of  the  scarcity  of  labor.  He  now  sues  Bernard  (1)  for  the  value 
of  the  sugar,  and  (2)  for  the  expenses  in  removing  the  cider.     Could  he  recover? 

2.  Wilson  entrusted  a  horse  to  Brett,  to  ride  to  the  town  of  Middleboro 
to  show  a  prospective  buyer.  Instead  of  so  doing  Brett  drove  the  horse  to  a 
race  track  beyond  Middleboro,  where  as  he  was  witnessing  a  race,  the  horse 
was  run  into  and  killed.  Brett  could  not  have  avoided  the  collision.  Could 
Wilson  recover  the  value  of  the  horse  from  Brett?     Why? 

3.  Corcoran,  a  liveryman,  agreed  to  take  Chase's  horse  and  train  him  to 
drive  double  with  a  horse  which  Chase  was  to  purchase.  Corcoran  was  to 
receive  no  compensation.  He  incurred  expenses  for  horse-shoes  while  the  horse 
was  in  his  possession  and  refused  to  redeliver  the  horse  until  these  expenses 
were  paid  by  Chase.  Chase,  however,  claimed  that  Corcoran  was  responsible 
for  the  expenses,  as  he  derived  a  certain  benefit  from  the  use  of  the  horse. 
Could  Chase  reclaim  the  horse  without  paying  these  expenses?     Why? 

4.  Youl  put  certain  goods  on  board  Harbottle's  packet  boat  running 
from  London  to  Gravesend,  Harbottle  agreeing  to  carry  them  as  an  accommo- 
dation and  to  deliver  them  to  Youl's  agent  at  Gravesend.  When  the  boat 
reached  Gravesend  a  stranger  came  aboard,  claimed  to  be  Youl's  agent  and 
showed  letters  from  Youl  to  him.  Harbottle  delivered  the  goods  and  it  later 
developed  that  the  stranger  was  an  impostor  who  had  found  the  letters.  Youl 
sued  Harbottle  for  the  value  of  the  goods.     Could  he  recover?     Why? 

5.  Manchester  borrowed  a  horse  to  drive  from  Worcester  to  Clinton 
and  return.  On  his  return  from  Clinton  he  went  out  of  his  way  on  an  errand 
to  another  city.  Although  he  drove  very  carefully  the  horse  stepped  in 
a  hole  before  he  got  back  to  Worcester,  broke  its  leg,  and  had  to  be  shot. 
Spooner,  the  owner  of  the  horse,  now  sues  to  recover  its  value.  May  he  do 
so?     Why? 


CHAPTER  XXX 
BAILMENT  FOR  BENEFIT   OF  BAILEE 

295.  Gratuitous  Loans  constitute  the  principal  form  of 
bailments  made  solely  for  the  benefit  of  the  bailee.  In  this  sense 
the  use  of  the  word  "loans"  must  be  understood  to  refer  to 
articles  of  personal  property  borrowed  for  use  by  the  bailee,  or 
borrower,  without  compensation  to  the  bailor  or  lender. 

296.  Rights  and  Duties  of  the  Parties.  The  borrower, 
though  not  liable  for  every  possible  injury  which  may  befall  the 
property  while  it  is  in  his  hands,  is  held  responsible  to  use  the 
highest  possible  degree  of  care  which  careful  men  use  in  the 
transaction  of  business,  and  in  the  conduct  of  their  own  affairs. 
Even  slight  negligence  will  render  such  a  bailee  liable  to  compen- 
sate the  bailor  in  damages  for  his  loss.  This  is  because  the  rela- 
tionship exists  solely  for  the  benefit  of  the  bailee  and  while  he 
cannot  be  deemed  to  insure  the  property  he  is  required  to  guard 
it  with  the  highest  degree  of  care. 

EXAMPLE 
Green  borrowed  HolHngsworth's  watch.  He  removed  the  chain,  fastened 
a  twine  string  and  a  key  to  it,  put  it  in  his  p>ocket,  and  about  three  weeks' later 
while  on  a  hunting  expedition  lost  the  watch.  Green  was  found  to  be  liable 
as  having  been  guilty  of  at  least  slight  negligence.  Green  vs.  Hollingsworth, 
5  Dana  (Ky.)  173. 

Use  of  the  Thing  Borrowed.  The  borrower  is  confined 
strictly  to  the  use  for  which  the  thing  was  loaned,  whether  this 
use  was  actually  agreed  upon  or  must  have  been  implied  from  the 
nature  of  the  article  and  the  surrounding  circumstances.  A  slight 
departure  from  the  purpose  of  the  bailment  is  at  the  peril  of  the 
bailee  and  makes  him  absolutely  liable  for  any  damage  to  the 
property. 

EXAMPLE 

A  loaned  a  lathe  to  B  for  his  personal  use.  B,  having  finished  using  it, 
loaned  it  to  C,  who  without  his  fault  damaged  it.  A  immediately  sued  B  for 
the  damage  and  recovered,  B  by  his  wrongful  act  having  become  liable  for 
anything  which  might  befall  the  lathe.     Fox  vs.  Young,  22  Mo.  App.  386. 

225 


226  BAILMENTS  FOR  BENEFIT  OF  BAILEE 

Special  Items  of  Liability  of  Borrower.  A  borrower  is 
required  to  pay  all  of  the  expenses  necessarily  arising  from  the  use 
of  the  property.  This  is  just,  for  he  alone  receives  the  benefit. 
Thus  he  is  required  to  pay  for  the  feeding,  stabHng,  and  shoeing 
of  a  borrowed  horse.  If  he  borrows  machinery  he  must  keep  it 
in  repair.  On  the  other  hand,  he  is  not  Hable  for  extraordinary 
expenses,  not  incident  upon  the  ordinary  use  of  the  article  bor- 
rowed, and  which  arise  without  his  fault. 

EXAMPLE 

Ames  borrowed  a  valuable  violin  from  Bates.  Later  the  violin  was 
stolen  from  Ames'  house,  during  the  absence  of  Ames,  the  doors  having  been 
securely  locked.  It  also  appeared  that  the  thief  entered  through  a  window 
and  stole  a  number  of  Ames'  goods  as  well.  Ames  is  not  liable  for  the  loss  of 
the  violin,  he  having  used  the  greatest  care. 

Liability  of  the  Lender.     When  a  bailment  is  for  the  benefit 
of  the  borrower,  the  lender  is  liable  for  damage  caused  by  defects 
in  the  article  loaned  if  the  damage  is  the  result  of  an  unsafe  con- 
dition of  the  thing  loaned,  known  to  the  lender  and  not  communi-  m 
cated  to  the  borrower,  but  not  otherwise. 

EXAMPLE 

A  had  a  defective  steam  boiler,  which  he  loaned  to  B  to  use  in  certain 
work.  B  knew  nothing  of  the  condition  of  the  boiler,  and  while  in  his  posses- 
sion it  blew  up  without  his  fault  and  did  considerable  damage  to  his  property. 
He  was  allowed  to  recover  damages  from  A.     Gagnon  vs.  Dana,  69  N.  H.  264. 

Borrower's  Right  to  Retain.  The  borrower  has  the  right  to 
retain  the  article  loaned  for  the  period  of  the  bailment,  if 
specified,  but  upon  its  termination  he  must  return  it  to  the  lender. 

EXAMPLE 

Lawson  loaned  Lay  his  team  to  take  a  load  of  corn  to  a  neighboring 
market.  On  the  way  Lawson  overtook  Lay  and  demanded  the  return  oj 
his  team.  Lay  had  the  right  to  refuse  to  redeliver  the  team  until  he  had  the 
corn  at  market.     Lay  vs.  Lawson,  23  Ala.  377. 

Return  of  Property.     The  bailee,  or  borrower,  is  under  the] 
duty  of  returning  the  property  immediately  at  the  end  of  the 
period  for  which  the  loan  was  made.     He  must  also  return  allj 
increase  and  profits  of  the  borrowed  property,  except  of  course 
the  benefits  which  come  to  him  from  the  use  of  the  property  foi 


BAILMENTS   FOR   BENEFIT  OF   BAILEE  227 

which  it  was  loaned.  The  property  must  be  returned  to  the 
bailor  personally,  and  it  is  not  sufficient  merely  to  return  it  to  his 
premises,  unless  his  attention  is  specifically  directed  to  the  return. 
Nor  does  the  borrower  have  any  right  of  lien  which  entitles  him 
to  retain  the  property  for  the  payment  of  a  debt  due  him  from 
the  bailor.  Neither  can  he  retain  the  property  by  claiming  that 
it  did  not  belong  to  the  bailor,  for  by  his  accepting  the  bailment 
he  recognized  the  bailor's  title  and  this  he  cannot  later  deny, 

EXAMPLE 
Esmay  loaned  his  horses  and  carriage  to  Fanning  to  use,  on  an  agreement 
that  Fanning  should  return  them  to  Esmay  on  demand.  The  property  was 
in  a  livery  stable  belonging  to  Jones,  where  Fanning  secured  it,  but  later, 
having  finished  using  it,  he  returned  it  to  Esmay's  private  stable,  in  Esmay's 
absence,  where  it  was  destroyed  the  same  night  by  fire.  Esmay  sued  Fanning 
for  the  value  of  the  property  and  was  allowed  damages.  Esmay  vs.  Fanning, 
9  Barb.(N.  Y.)   176. 

BAILMENT  FOR   MUTUAL  BENEFIT— PLEDGE 

297.  A  Pledge  or  Pawn  is  a  bailment  to  secure  the  perform- 
ance of  some  obligation,  with  power  of  sale  in  case  of  non-per- 
formance. Every  form  of  personal  property  may  be  the  subject 
of  a  pledge.  Evidences  of  ownership  of  property,  such  as  bills 
of  lading,  warehouse  receipts,  negotiable  instruments,  stocks  and 
bonds,  as  well  as  clothing,  jewelry,  and  other  forms  of  personal 
property  may  be  deposited  by  the  owner  with  another  person 
to  secure  the  performance  of  some  obligation  by  the  owner. 
This  obligation  often  consists  in  the  payment  of  a  debt ;  in  some 
instance,  it  consists  in  the  performance  of  an  act. 

298.  Rigiits  and  Duties  of  the  Parties.  Since  this  is  a  form 
of  bailment  for  the  benefit  of  both  parties,  the  bailee  is  required 
to  exercise  ordinary  care  and  is  liable  for  ordinary  negligence. 
He  must  guard  the  property,  while  it  is  in  his  possession,  with  the 
same  degree  of  care  with  which  the  average,  reasonably  prudent 
man  would  guard  his  own  property, 

EXAMPLE 

Jenkins  pledged  some  stock  at  a  bank  as  security  for  a  loan  of  money. 
The  stock  was  placed  in  the  vault  with  the  moneys  and  securities  of  the  bank. 
Safe-blowers  robbed  the  bank,  taking  Jenkins'  stock,  together  with  other 
valuables.  The  bank  was  not  liable  to  Jenkins  for  this  loss.  J.enkins  vs. 
National  Bank,  58  Me.  570. 


228  BAILMENTS  FOR   BENEFIT  OF   BAILEE 

Use  of  the  Property.  As  a  general  rule  the  pledgee,  as  the 
person  who  receives  pledged  property  is  called,  does  not  have 
the  right  to  use  the  property,  except  with  the  express  permission 
of  the  bailor.  His  only  right  is  to  hold  the  property  as  security 
for  the  obligation  for  which  it  is  given.  The  usual  exception 
to  this  rule  is  in  the  case  of  animals  which  require  moderate  use 
to  keep  them  in  good  condition  and  health. 

EXAMPLE 

Heath  held  stock  belonging  to  Jones  as  security  for  a  debt  which  Jones 
owed  to  him.  Heath  attempted  to  vote  as  a  stock-holder  of  the  company  at  an 
annual  election.  This  he  could  not  do,  as  he  acquired  no  rights  by  virtue  of 
the  pledge,  except  the  custody  of  the  shares  of  stock  as  security  for  the  payment 
of  the  debt.     Heath  vs.  Silverthorn  Company,  39  Wis.  147. 

Surrender  to  True  Owner.  The  bailee  acquires  no  better 
rights  than  those  of  the  bailor,  and  if  the  article  pledged  has  been 
stolen,  or  found,  or  is  wrongfully  pledged  by  one  not  the  owner, 
the  bailee  must  surrender  the  property  on  demand  by  the  true 
owner. 

Remedies  of  Bailee  on  Non-Performance  of  Obligation.  The 
bailee  can  retain  the  article  pledged  so  long  as  the  debt  which  it 
secures  is  unpaid.  After  the  time  has  passed  at  which  the  obli- 
gation should  have  been  performed,  or  the  debt  paid,  the  pledgee 
has  certain  additional  rights.  He  may  (1)  sue  the  bailor  and 
debtor  upon  the  debt,  without  selling  the  pledge;  (2)  proceed 
in  a  court  of  equity  to  foreclose  his  lien  against  the  property 
pledged,  or  (3)  give  reasonable  notice  to  the  bailor  to  pay  the 
debt  and  redeem  the  property,  and  on  his  failure  to  do  so  may  sell 
the  property  at  an  open  and  public  sale,  which  must  be  free  from 
all  suspicion  of  fraud.  An  agreement  in  advance  that  the  pledged 
goods  can  be  sold  at  a  certain  time  if  payment  is  not  made, 
is  valid. 

When  the  third  remedy  is  used  the  bailee  cannot  himself  be  a 
purchaser  of  the  article,  nor  can  he  sell  it  at  a  private  sale,  unless 
the  conditions  of  the  pledge  particularly  provide  for  it. 

Until  the  bailee  resorts  to  one  of  these  remedies  he  continues 
to  hold  the  property  solely  as  security  for  the  debt,  and  when  the 
debt  is  paid,  or  payment  is  tendered,  he  must  redeliver  the 


BAILMENTS   FOR   BENEFIT  OF   BAILEE  229 

property  in  the  same  condition  in  which  he  received  it.  Should 
he  yeturn  the  property  before  the  payment  of  the  debt,  he  loses 
his  right  of  lien  and  security. 

As  previously  noted,  the  terms  under  which  the  sale  may 
be  made,  including  a  waiver  of  notice,  may  be,  and  generally 
are  agreed  upon  between  the  parties  at  the  time  the  pledge  is 
made.  In  the  absence  of  such  agreements  the  state  statute 
governing  the  sales  of  pledged  property  must  be  allowed,  and 
these  statutes  usually  provide  the  time  and  manner  in  which 
notice  of  the  sale  must  be  given  and  also  that  the  sale  must  be  an 
advertised  public  sale. 

If  the  pledged  property  be  sold  as  provided  in  the  agreement 
between  the  parties  or  as  provided  by  statute,  and  the  amount 
realized  be  insufficient  to  satisfy  the  debt,  the  bailor  still  owes  the 
balance.  If  an  amount  greater  than  the  debt  be  realized,  the 
bailee  must  pay  the  excess  to  the  bailor. 

EXAMPLE 

Marsh  deposited  ten  cases  of  boots  with  Stearns  to  secure  the  payment  of  a 
note,  which  became  due  on  November  8.  On  November  15,  without  notice 
to  Marsh,  Stearns  sold  the  boots  at  public  auction,  realizing  slightly  less  than 
the  note,  and  sued  Marsh  for  the  balance  of  the  note.  Stearns  was  denied 
recovery  and  damages  were  allowed  to  Marsh,  for  the  failure  to  give  him  notice 
to  redeem  was  wrongful,  and  made  the  act  of  Stearns  amount  to  an  unlawful 
appropriation  of  Marsh's  property.     Stearns  vs.  Marsh,  4  Denio  (N.  Y.)  227. 

REVIEW    QUESTIONS 

L  Goodman  pledged  his  life  insurance  policy  with  a  bank  to  secure  notes 
on  which  he  owed  money,  and  for  sums  to  be  borrowed  from  time  to  time  at 
future  dates.  The  notes  were  paid,  Goodman  died,  and  his  executor  demanded 
the  return  of  the  insurance  policy,  but  the  bank  refused  to  deliver  it,  claiming 
that  Goodman  had  borrowed  other  money  which  he  had  never  paid.  Assum- 
ing that  the  bank's  claim  is  true,  may  the  bank  retain  the  policy? 

2.  Wilson  bought  a  cargo  of  goods  in  London  to  be  shipped  to  New 
York.  Needing  money  to  carry  on  his  business,  he  took  the  negotiable  bill 
of  lading  which  he  received  to  Little,  a  banker,  and  borrowed  money  on  this 
security.  He  then  sold  the  goods  by  means  of  a  bill  of  sale  to  Johnson,  who 
claimed  the  goods  on  their  arrival  in  New  York.  Who  would  be  entitled  to 
receive  them?     Under  what  conditions? 

3.  Ames  held  property  of  Bates  as  security  for  a  loan  of  S400.  Being 
himself  indebted  to  Call,   he  transferred  the  property  of  Bates  to  Call  as 


230  BAILMENTS  FOR  BENEFIT  OF  BAILEE 

security  or  his  debt  to  Call  of  $500.  Ames  demands  the  return  of  the  property 
from  Call,  who  refuses  to  give  it  up  unless  Ames  will  pay  the  $500  indebtedness. 
What  are  the  rights  of  the  parties? 

4.  Egan  takes  Dale's  horse  in  order  to  try  him  before  buying.  Egan,  not 
being  able  to  drive  himself,  permits  Fair,  a  competent  horseman,  to  drive  the 
horse.  While  being  so  driven,  the  horse  is  injured  without  the  fault  of  either 
party.     Who  bears  the  loss?     Why? 

5.  Murphy  lends  his  horse  to  Simpson  to  drive.  It  is  known  to  Murphy 
that  the  horse  is  a  vicious  animal  and  easily  frightened  by  automobiles,  but 
he  does  not  inform  Simpson  of  these  characteristics.  The  horse  runs  away 
and  injures  both  himself  and  Simpson.     Who  is  liable  in  damages  and  for  what? 


CHAPTER  XXXI 
BAILMENT  FOR  MUTUAL  BENEFIT  — HIRE 

299.  Hire  is  a  delivery  of  personal  property  to  another  to  be 
used  by  him,  or  to  be  stored,  transported,  or  worked  upon  by 
him,  for  a  compensation.  If  the  property  is  to  be  used  by  the 
bailee  the  compensation  is  to  be  paid  by  him  to  the  bailor;  but 
if  the  property  is  left  with  the  bailee  for  some  service  to  be  per- 
formed on  it,  then  the  bailee  receives  compensation  from  the 
bailor.  In  either  event  the  bailment  is  of  the  type  of  bailment 
for  mutual  benefit,  for  one  party  receives  compensation  and  the 
other  receives  the  use  of  it,  or  one  party  receives  compensation 
and  the  other  party  receives  the  improvement,  storage,  or  trans- 
portation of  the  thing  bailed.  Hire  is  treated  under  these  two 
general  sub-divisions:  (1)  Hire  by  the  bailee;  and  (2)  hire  by 
the  bailor. 

300.  Hire  by  the  Bailee  is  a  contract  by  which  the  bailee 
hires  the  use  of  the  thing  bailed,  agreeing  to  pay  to  the  bailor 
some  compensation  for  its  use. 

301.  Rights  and  Duties  of  Parties.  The  bailee  for  hire 
becomes  entitled  to  the  possession  of  the  article  for  the  period 
of  the  contract  of  bailment.  The  bailor  must  deliver  the  thing 
promptly  and  as  agreed,  and  if  it  has  become  broken  or  is  out  of 
repair,  the  hirer  may  rightfully  refuse  to  accept  it.  The  bailor 
must  not  interfere  with  the  hirer's  possession  during  the  period  of 
the  contract,  and  while  he,  being  the  owner,  can  sell  his  rights  to 
a  third  person,  he  cannot  sell  the  right  to  possession,  for  during 
the  contract  of  bailment  that  right  belongs  to  the  hirer-bailee. 
The  hirer  is  responsible  for  keeping  the  thing  bailed  in  ordinary 
working  condition,  or  for  providing  the  ordinary  food  if  the  thing 
bailed  is  an  animal,  but  the  owner  is  responsible  for  extraordinary 
expenses  necessary  to  preserve  the  property,  occurring  without 
the  fault  of  either  party. 

231 


232  BAILMENTS   FOR   MUTUAL   BENEFIT.     HIRE 

EXAMPLE 

French  hired  his  horse  to  Devereux,  and  while  in  Devereux'  possession 
the  horse  became  ill  without  the  fault  of  anyone.  In  order  to  save  the  life 
of  the  animal  Devereux  employed  the  nearest  veterinary  surgeon  and  on  the 
recovery  of  the  horse,  the  veterinarian  sent  his  bill  to  French,  who  was  com- 
pelled to  pay  the  reasonable  value  of  the  services  rendered.  If  the  horse  had 
become  ill  because  of  Devereux'  fault  he  would  have  had  to  bear  the  expense: 
Leach  vs.  French,  69  Me.  389. 

Defects  Known  to  Bailor.  The  bailor  is  under  the  duty  of 
informing  the  bailee  of  any  known  defects  in  the  thing  bailed 
which  may  injure  the  bailee.  If  he  fails  to  do  this  he  is  respon- 
"sible  for  any  damage  which  may  befall  the  bailee,  who  may 
rely  upon  the  silence  or  statements  of  the  bailor  as  to  the  condi- 
tion of  the  thing  bailed  until  he  discovers  the  true  facts  to  be 
otherwise. 

EXAMPLE 

Copeland,  a  mounted  policeman,  rented  a  horse  of  Draper,  a  liveryman 
who  knew  the  horse  was  afflicted  with  a  disease  called  "blind  staggers,"  but 
failed  to  inform  Copeland  of  this  fact.  While  Copeland  was  riding  the  horse 
it  staggered  and  threw  him  to  the  ground,  breaking  his  leg  and  three  ribs. 
Draper  was  compelled  to  pay  Copeland  for  the  injury  sustained.  Copeland 
vs.  Draper,  157  Mass.  558. 

Right  to  Use.  The  bailee-hirer  must,  in  absolute  good  faith, 
use  the  thing  hired  only  in  the  manner  and  for  the  purpose  for 
which  it  was  hired,  or  for  purposes  which  may  be  fairly  implied 
from  the  contract.  If  he  should  use  the  property  for  a  different 
purpose,  this  would  be  a  wrongful  act,  and  he  would  be  absolutely 
liable  for  any  damage,  regardless  of  the  degree  of  care  he  used. 
Where  one  hires  a  horse  to  drive  and  uses  it  for  heav>-  teaming, 
drives  to  a  place  other  than  that  which  he  designated  at  the  time 
he  hired  the  horse,  or  otherwise  materially  and  intentionally 
deviates  from  the  purpose  of  the  particular  bailment,  he  is  said 
to  have  dealt  with  the  property  as  though  it  were  his  own, 
denying  the  rights  of  the  owner.  He  is  said  to  have  "converted 
the  thing  to  his  own  use."  The  result  of  such  conversion  is  to 
make  him  liable  for  damage  of  any  kind  or  nature  which  may 
befall  the  thing  bailed  before  its  return. 


BAILMENTS   FOR   MUTUAL   BENEFIT.     HIRE  233 

EXAMPLE 

Wallace  bought  a  barge  load  of  coal  of  Cobb  and  hired  Cobb's  barge  to 
transport  the  coal  from  Hawesv^ille  to  Louisville,  agreeing  to  return  the  barge 
immediately  upon  the  conclusion  of  the  trip.  Instead  of  so  doing  Wallace 
used  the  barge  on  trips  out  of  Louisville  for  two  weeks.  The  barge  was  con- 
fiscated by  persons  in  the  military  service  of  the  United  States.  Wallace  was 
responsible  to  Cobb  for  the  value  of  the  barge.  Cobb  vs.  Wallace,  3  Cold. 
(Tenn.)  539. 

Degree  of  Care.  The  degree  of  care  required  of  the  hirer 
while  using  the  property  within  the  purposes  of  the  bailment  is 
the  same  as  in  other  bailments  for  mutual  benefit.  He  is  respon- 
sible for  failure  to  use  ordinary  care.  At  the  termination  of  the 
period  of  bailment  he  must  return  the  property  to  the  bailor  in 
the  same  condition  as  it  was  when  he  received  it,  less  the  ordinary 
wear  incident  upon  its  reasonable  use.  He  must  also  compensate 
the  owner  for  its  use  according  to  the  terms  of  the  contract  of 
bailment. 

EXAMPLE 

Hofer,  having  agreed  to  do  certain  hauling  for  Hodge,  was  unable  to  fulfill 
the  agreement  because  of  the  illness  of  his  teamster.  He  thereupon  took  the 
team  to  Hodge  and  told  Hodge  to  employ  a  driver  and  have  the  hauling  done, 
charging  the  expense  to  him..  This  Hodge  did,  but  employed  to  drive  the 
team  an  incompetent  person,  who  backed  them  oflf  a  dock,  the  horses  being 
drowned.  Hodge  was  liable  to  Hofer  for  the  value  of  the  animals,  as  he 
had  not  used  ordinary  care  in  selecting  a  driver.  Hofer  vs.  Hodge,  52 
Mich.  372. 

9 

302.  Hire  by  the  Bailor  includes  the  deposit  of  the  bailed 
property  with  the  bailee,  under  a  contract  of  bailment  by  which 
the  bailee  agrees  either  to  perform  work  on  the  thing  bailed,  to 
transport  it,  or  to  keep  it  safe  for  the  bailor,  for  a  compensation. 

Bailments  for  Performance  of  Services.  When  the  bailor 
delivers  the  property  to  the  bailee,  who  agrees  to  perform  work 
upon  it  for  a  compensation,  the  bailee  is  under  the  duty  of  exer- 
cising ordinary  care  both  in  keeping  the  article  and  in  performing 
the  services.  This  care  must  correspond  with  the  care  ordinarily 
exercised  under  like  conditions. 


234  BAILMENtS  FOR  MUTUAL   BENEFIT.    HIRE 

EXAMPLES 

1.  Ames  takes  some  fine  gold  ornament'i.  and  costly  gems  to  a  jeweler 
to  be  made  into  a  necklace.  The  value  of  the  articles  and  the  character  of  the 
work  required  to  be  done  make  it  essential  that  a  highly  skilled  workman  be 
employed  upon  it,  and  if  the  jeweler  employs  an  apprentice  who  does  the  work 
in  such  a  manner  that  the  materials  are  injured,  he  assumes  a  liability  for  the 
damage  to  Ames. 

2.  Mrs.  Lincoln  took  cloth  to  Miss  Gay,  a  dressmaker,  to  be  made  into  a 
dress.  Miss  Gay  made  up  the  dress  with  the  goods  wrong  side  out.  Mrs. 
Lincoln  was  entitled  to  recover  the  value  of  the  goods,  for  Miss  Gay  was  bound 
to  employ  that  degree  of  skill  and  care  ordinarily  possessed  and  used  by 
dressmakers.     Lincoln  vs.  Gay,  164  Mass.  537. 

Completion  of  Services.  The  bailee  must  complete  the  work 
which  he  was  employed  to  perform,  before  he  can  recover  com- 
pensation. It  sometimes  happens  that  the  thing  bailed  is 
destroyed  while  in  his  possession,  preventing  the  completion  of 
the  work.  If  the  article  be  destroyed  without  the  fault  of  either 
party,  the  owner  of  the  goods  bears  the  loss  and  must  also  com- 
pensate the  bailee  for  the  work  done  at  the  time  of  destruction. 

If  the  fault  of  the  bailor  prevents  the  completion  of  the 
services,  the  bailee  may  recover  for  the  services  rendered  and  for 
any  loss  naturally  resulting  from  the  bailor's  wrong. 

If,  however,  the  bailee  without  cause  abandons  the  work 
before  completion,  he  cannot  recover  at  all  in  many  states,  while 
others  allow  him  to  recover  the  value  of  the  services  actually 
performed  less  the  amount  of  damage  caused  to  the  bailor  by  his 
refusal  to  complete  the  contract. 

EXAMPLE 

Ames  delivers  lumber  to  Bates,  to  be  put  into  a  building  to  be  erected 
according  to  certain  plans  and  specifications.  Bates  has  performed  half  of 
the  work  when  the  building  is  destroyed  by  fire,  without  his  fault.  Bates  is 
entitled  to  recover  the  value  of  the  services  already  performed,  and  Ames  must 
bear  the  loss  of  the  building. 

Bailee's  Right  of  Lien.  A  workman  employed  to  make  up 
materials,  or  to  alter  or  repair  an  article,  has  a  lien  upon  it  for 
his  pay,  and  cannot  be  compelled  to  redeliver  the  article  until 
he  is  compensated  for  his  services.  His  lien  gives  him  the  right 
to  retain  possession  of  the  article,  but  does  not,  except  by  special 
statutes  in  some  few  states,  give  him  the  right  to  sell  the  article 


BAILMENTS   FOR   MUTUAL   BENEFIT.     HIRE  235 

to  secure  his  payment.  This  lien  is  terminated  when  the  article 
is  returned  to  the  bailor,  or  to  the  bailor's  agent,  and  cannot  be 
re-established.  It  is  likewise  terminated  by  payment,  or  by  the 
tender  of  payment,  by  the  bailor,  for  the  services  performed. 
The  lien  for  the  entire  charges  of  a  single  transaction  may  be 
enforced  against  such  goods  as  remain  in  the  bailee's  possession, 
even  though  a  part  of  the  goods  on  which  the  charges  accrued  may 
have  beeii  delivered  to  the  bailor. 

EXAMPLES 

1.  Sensenbrenner  delivered  his  buggy  to  Matthews  to  be  provided  with 
new  iron  tires.  This  work  Matthews  performed  and  then  at  Sensenbrenner's 
directions  delivered  the  buggy  to  Maxwell,  a  painter,  who  had  a  shop  in  an 
adjoining  part  of  the  same  building.  Maxwell  painted  it  and  when  it  was, 
completed  Matthews  took  it  back  to  his  own  shop  where  he  claimed  the  right 
to  retain  it  until  he  was  paid  for  his  services  in  tiring  the  buggy.  This  he  had 
no  right  to  do,  having  lost  his  lien  by  allowing  the  buggy  to  get  out  of  his 
possession.  He  still  had  the  right,  however,  to  sue  Sensenbrenner  for  the 
value  of  his  services.     Sensenbrenner  vs.  Matthews,  48  Wis.  250. 

2.  Minney  mortgaged  his  boat  to  Scott,  but  retained  possession,  and 
ran  it  into  Delahunt's  dry-dock  so  that  Delahunt  might  make  repairs  on  it. 
Scott  demanded  the  boat,  but  Delahunt  was  allowed  to  retain  it  until  the 
charges  for  repairs  had  been  paid.     Scott  vs.  Delahunt,  65  N.  Y.  128. 

Hire  by  Bailor  for  Safe-keeping.  An  owner  may  leave  his 
property  with  another  for  safe-keeping,  compensating  the  keeper 
for  his  trouble.  Warehousemen,  grain  elevator-men,  bankers 
who  maintain  safety  deposit  vaults,  agisters,  and  wharfingers 
are  bailees  for  safe-keeping.  An  agister  is  one  who  takes  in 
domestic  animals  to  feed  and  keep,  as  a  livery  man  who  operates 
a  boarding  stable. 

The  duties  of  the  bailees  in  such  bailments  are  similar  to 
those  of  bailees  in  any  other  form  of  bailment  for  mutual  benefit. 
They  are  required  to  use  ordinary  care  in  guarding  from  injury 
the  article  bailed,  to  preserve  and  care  for  it  according  to  the 
contract  of  bailment,  and  to  return  it  to  the  owner  at  the  termi- 
nation of  the  period  of  bailment  in  the  same  condition  as  that  in 
which  they  received  it.  They  have  a  lien  on  the  property  for 
their  charges  for  storage. 

In  the  case  of  warehousemen  a  receipt  is  often  issued,  and  if 
this  receipt  be  negotiable  in  form,  the  rules  regarding  the  transfer 


236  '  BAILMENTS   FOR   MUTUAL   BENEFIT.     HIRE 

of  property  by  means  of  negotiable  receipts,  already  discussed 
under  the  subject  of  Sales  of  Personal  Property,  apply. 

Another  bailee  of  this  class  is  the  commission  merchant  who 
has  received  goods  to  sell  for  the  owner;  he  is  required  to  keep 
them  safely  until  they  are  sold. 

EXAMPLES 

1.  Hensel  left  several  horses  and  cows  with  Noble  to  pasture  for  him. 
He  later  attempted  to  remove  one  of  the  horses,  but  Noble  refused  to  allow 
him  to  do  so  until  the  charges  for  pasturage  were  paid.  Hensel  proved  that 
the  other  horses  and  cows  were  sufficient  security  for  the  payment  of  Noble's 
charges,  but  this  proof  did  not  entitle  him  to  remove  the  horse,  for  an  agister 
has  a  right  of  lien  to  all  property  in  his  possession  until  he  is  paid.  Hensel 
vs.  Noble,  95  Pa.  St.  345. 

2.  Leidy  placed  poultry  in  a  cold  storage  warehouse  in  good  condition; 
but  because  the  warehouse  was  kept  too  moist  they  became  mouldy.  The 
^warehouseman  was  liable  for  the  damage,  as  it  was  negligence  to  fail  to  keep 
the  warehouse  in  fit  condition  for  the  storage  of  produce  received.  Leidy  vs. 
I.  C.  Cold  Storage  Co.,  180  Pa.  St.  323. 

Hire  by  Bailor  for  Transportation.  The  owner  of  goods  may 
desire  to  have  them  transported  from  one  place  to  another. 
For  this  purpose  he  employs  some  person  to  carry  them,  and 
this  person  becomes  a  bailee  of  the  goods  while  they  are  in  his 
custody. 

Such  persons  are  called  carriers  and  may  be  either  (1)  private 
or  (2)  public  carriers.  The  duties  of  public  carriers  are  discussed 
in  the  next  chapter  on  Exceptional  Bailments. 

A  private  carrier  is  one  who  occasionally  carries  goods  of 
another,  but  who  does  not  hold  himself  out  as  a  carrier  of  goods 
for  the  general  public.  He  differs  from  the  common  carrier  in ! 
that  he  has  the  full  right  to  contract  when  and  with  whom  he 
pleases,  without  any  special  regulations  or  duties  imposed  by 
statute.  Private  teaming  contractors,  draymen,  messengers,  i 
and  occasional  carriers  by  boat,  wagon,  or  other  vehicle,  come 
within  this  classification.  Since  they  are  carriers  for  hire  their, 
only  duties  are  to  exercise  ordinary  care  for  the  preservation  ofi 
the  goods,  to  perform  the  services  agreed  upon,  and  to  deliver' 
the  goods  on  payment  of  their  charges. 


BAILMENTS   FOR   MUTUAL   BENEFIT.     HIRE  237 

EXAMPLE 

Sackrider  at  the  request  of  Allen  carried  a  load  of  grain  on  his  boat  at  an 
igreed  price  between  two  river  towns.  Sackrider  was  not  regularly  engaged 
in  this  business.  During  the  journey  the  grain  was  destroyed  during  a  storm. 
It  was  admitted  that  Sackrider  had  exercised  ordinary  care.  If  Sackrider 
had  been  a  common  carrier  he  would  have  been  liable,  but  Allen  was  denied 
recovery  because  Sackrider  was  a  private  carrier  and  had  used  ordinary  care, 
fallen  vs.  Sackrider,  37  N.  Y.  34L 

REVIEW    QUESTIONS 

1.  McDuffie  hired  a  horse  and  buggy  to  drive  to  Durham,  but  drove 
t  to  Hampton,  two  miles  from  Durham.  Without  any  fault  of  McDuffie, 
;he  horse  was  run  into  at  Hampton  and  killed.  Wentworth,  who  owned 
:he  horse  and  had  hired  it  to  McDuffie,  sued  for  its  value.  Could  he  recover? 
iVhy? 

2.  An  officer  of  the  American  District  Telegraph  Company  hired  from 
iValker  a  team  and  surrey  for  the  company's  business.  Having  completed 
:heir  use  he  sent  them  back  in  care  of  a  small  boy,  who  stated  he  was  expe- 
ienced  with  horses.  The  boy  was  not  familiar  with  horses,  however,  and  the 
:eam  ran  away,  one  of  the  horses  being  injured  so  that  it  had  to  be  shot.  Can 
yValker  recover  of  the  American  District  Telegraph  Company  for  his  loss? 

3.  Ames  stored  his  goods  in  Bates'  warehouse.  While  making  repairs 
ipon  the  timbers  and  beams  of  the  warehouse,  Bates  removed  some  of  the 
;oods,  but  allowed  Ames'  to  remain.  During  the  process  of  repair,  which 
.vas  being  done  by  competent  workmen,  the  building  collapsed  and  Ames' 
joods  were  damaged.  Ames  sued  Bates  for  the  amount  of  loss.  Could  he 
•ecover?     Why? 

4.  Cox  placed  a  box  of  dry  goods  on  a  dock  belonging  to  O'Reilly  to  be 
:arried  on  one  of  O'Reilly's  boats,  but  neglected  to  give  any  notice  to  O'Reilly 
)f  the  delivery  of  the  goods.  The  goods  were  lost  and  Cox  sued  O'Reilly  for 
heir  value.     Can  he  recover? 

5.  Schmidt  stored  99  tons  of  hemp  with  Blood,  a  warehouseman.  At 
various  times  he  received  all  but  six  tons,  which  Blood  refused  to  deliver  until 
ill  the  charges  for  storage  on  the  entire  lot  of  hemp  had  been  paid.  Schmidt 
iued  to  recover  the  six  tons,  claiming  that  Blood  had  lost  any  lien  which  he 
night  have  had  by  allowing  a  part  of  the  hemp  to  leave  his  possession.  He 
Iso  offered  to  pay  Blood  the  storage  charges  on  six  tons  of  hemp.  May  he 
ecover  it?     Why? 


CHAPTER  XXXTI 
EXCEPTIONAL  BAILMENTS 

303.  Introduction.  There  are  two  types  of  bailees  regarding 
whom  the  ordinary  rules  concerning  the  bailee's  rights  and 
duties  in  respect  to  the  thing  bailed  do  not  apply.  These  are 
(1)  inn-keepers,  and  (2)  common  carriers.  The  exceptional 
rules  applying  to  these  two  classes  of  bailees  also  apply  in  general 
to  the  operations  of  telegraph  and  telephone  companies  though 
neither  are  bailees  in  the  strict  sense  of  the  term. 

An  Inn-keeper  is  one  who  offers  to  accommodate  all  comers 
with  the  conveniences  usually  supplied  to  travelers.  One  is  not 
an  inn-keeper  when  he  provides  occasional  entertainment  only; 
nor  is  one  who  keeps  a  restaurant  and  provides  food  only. 
Neither  is  the  keeper  of  a  lodging  house  who  makes  separate 
contracts  with  each  guest  and  reserves  the  right  to  refuse  enter- 
tainment arbitrarily;  nor  are  sleeping  car  companies  considered 
to  be  inn-keepers.  A  steamboat  company  may  or  may  not  be  an 
inn-keeper,  depending  entirely  upon  all  the  circumstances  of 
its  business.  J 

Who  are  Guests.  Those  who  take  accommodations  at  an  inn 
as  transients,  not  including  those  who  make  the  inn  their  perma- 
nent home,  are  rated  as  guests.  This  is  true  even  though  they 
be  given  special  rates,  as  is  frequently  done  with  commmercial 
travelers,  ball  players,  or  other  frequent  patrons. 

304.  Rights  and  Duties  of  Inn-Keepers.  The  inn-keeper 
having  taken  upon  himself  a  public  employment  must  serve  the 
public.  His  first  duty  is  to  receive  to  his  inn  as  guests  withouf 
discrimination  such  travelers  as  may  ask  for  entertainment.  He 
cannot  select  his  guests.  This  is  a  duty  imposed  by  law,  and  if 
when  he  has  adequate  accommodations,  an  inn-keeper  refuses 
without  cause  to  receive  a  guest,  he  is  liable  to  compensate  the 
person  refused,  in  damages.  An  inn-keeper  may,  however, 
justify  a   refusal   by   showing  that  his  accommodations  were 

238 


EXCEPTIONAL   BAILMENTS  239 

already  exhausted  or  that  the  person  refused  was  without  funds 
to  pay  for  the  accommodations;  was  disreputable,  drunken,  or 
disorderly;  was  affected  with  a  contagious  disease;  or  resorted 
to  the  inn  for  an  illegal  purpose. 

As  soon  as  a  person  becomes  a  guest,  the  inn-keeper  under  the 
common  law  practically  insures  his  safety  and  the  safety  of  his 
personal  property  of  the  kind  which  travelers  usually  carry  with 
them.  This  liability  does  not  depend  at  all  upon  whether  the 
inn-keeper  has  used  care  to  prevent  the  loss,  or  injury,  but  he  is 
liable  regardless  of  his  own  carefulness.  The  only  exceptions 
to  such  liability,  under  the  common  law,  are  when  the  loss  or 
injury  is  caused  (1)  by  an  inevitable  accident,  as  a  flood,  called  an 
act  of  God,  (2)  by  the  act  of  a  public  enemy,  or  (3)  by  the  negli- 
gence of  the  guest. 

These  rules  have  been  somewhat  relaxed  by  statute  in  the 
several  states,  though  there  is  no  uniformity  in  this  regard.  It  is, 
however,  now  quite  generally  established  that  the  inn-keeper  is 
freed  from  responsibility  for  damage  occasioned  by  accidental 
fire,  not  due  to  his  fault,  or  by  other  similar  accidents.  He  is  also 
allowed  to  liiuit  his  liability  by  special  contract  with  the  guest 
to  that  of  an  ordinary  bailee  for  hire.  For  example,  by  giving 
notice  to  the  guest  that  he  will  be  responsible  for  valuables  only 
when  deposited  in  his  safe,  the  inn-keeper  may  limit  his  liability 
in  that  regard.  He  cannot,  however,  escape  liability  for  damage 
or  loss  to  wearing  apparel,  or  articles  usually  worn  on  one's 
person.  Some  statutes  limit  the  total  amount  of  an  inn-keeper's 
liability  to  any  one  guest. 

The  inn-keeper  has  a  lien  on  the  property  of  a  guest  for  the 
payment  of  the  bill  of  the  guest. 

EXAMPLE 

Caswell,  a  traveling  salesman  for  DeWald  &  Co.,  left  a  valise  containing 
$235  in  the  cloak  room  of  a  hotel,  from  which  it  was  stolen.  The  hotel  had 
no  checking  room,  nor  safe  for  the  keeping  of  valuables.  Recovery  was  allowed 
against  the  hotel,  even  though  the  clerk  had  not  been  notified  of  the  contents 
of  the  valise,  and  regardless  of  the  fact  that  it  was  not  shown  that  the  hotel 
keeper  had  been  guilty  of  a  want  of  ordinary  care.  Bowell  vs.  DeWald  &  Co., 
2  Ind.  App.  303. 


240  EXCEPTIONAL   BAILMENTS 

305.  A  Common  Carrier  is  one  who  regularly  undertakes  for 
hire  to  transport  goods  or  passengers  between  different  places, 
for  such  as  may  choose  to  employ  him.  To  be  a  common  carrier 
one  must  (1)  carry  on  a  public  employment  and  (2)  his  business 
must  be  one  of  carriage  for  hire.  As  a  consequence  of  his  occu- 
pation he  is  then  required  (1)  to  carry  any  goods  which  may  be 
offered  of  the  kind  he  professes  to  carry,  (2)  by  the  means  and 
over  the  route  he  has  established ;  and  upon  his  refusal  to  carry 
such  goods  must  compensate  the  person  refused  in  damages.  For 
convenience  the  carriers  of  -goods  and  of  passengers  are  treated 
separately. 

306.  Rights  and  Duties  of  Carrier  of  Goods.  To  Accept 
Goods.  The  common  carrier,  being  engaged  in  a  public  under- 
taking, is  obliged  to  accept  for  carriage  all  goods  offered  him  for 
transportation  which  come  within  the  limits  of  the  classes  of 
goods  he  represents  himself  as  carrying.  A  freight-carrying 
road  cannot  be  compelled  to  carry  money,  nor  an  express  com- 
pany grain  in  bulk,  or  iron  ore,  which  are  properly  carried  by 
companies  with  suitably  constructed  cars.  But  the  carrier  can- 
not discriminate  between  persons,  and  must  render  the  same 
services  alike  to  all  who  request  them.  The  carrier  must  exert 
reasonable  dispatch,  and  must  take  notice  if  the  goods  are 
specially  marked,  as  "Glass,"  "Perishable,"  and  use  suitable 
care  to  prevent  loss  or  injury.  Transportation  may  be  refused, 
however,  on  the  ground  that  the  facilities  are  inadequate,  or  on 
account  of  special  conditions  outside  of  the  carrier's  control. 

EXAMPLES 
1 

1.  Rae  offers  grain  to  a  railroad  company  to  carry  from  Rockford  to 
Chicago.  The  company  at  first  refused  to  furnish  cars,  though  it  finally  did 
so,  but  after  providing  them,  delayed  the  shipment.  Rae  sued  for  damages 
and  recovered  the  difference  between  the  market  price  of  the  grain  when  it  was 
finally  delivered  and  the  market  price  when  it  should  have  been  delivered  if  it 
had  been  shipped  promptly  upon  receipt.  G.  &  C.  U.  R.  R.  Co.  vs.  Rae, 
18  111.  468. 

2.  The  Milwaukee  Malt  Extract  Company  offered  a  railroad  a  con- 
signment of  boxes  labeled  "beer,"  directed  to  a  city  in  Iowa,  which  state  had 
a  statute  forbidding  the  sale  or  delivery  of  liquor  within  the  state,  and  provid- 
ing a  penalty  for  its  violation.     The  railroad  refused  to  accept  the  shipments 


EXCEPTIONAL   BAILMENTS  241 

on  this  ground.  The  shipper  sued  for  damages  but  could  recover  nothing. 
The  refusal  was  rightful.  Milwaukee  Malt  Ext.  Co.  vs.  Railroad  Company, 
73  Iowa  98. 

3.  Shanley  offered  a  railroad  company  a  package  for  carriage.  The 
package  was  unlabeled  and  contained  nitroglycerin.  The  railroad  refused 
to  carry  it  unless  labeled.  This  Shanley  refused  to  do  and  sued  the  railroad 
for  damages.  He  was  allowed  no  recovery,  the  demand  of  the  carrier  being 
reasonable  and  for  the  protection  of  other  property.  B.  &  M.  R.  R.  Co.  vs. 
Shanley,  107  Mass.  568. 

Right  to  Compensation. — Rates.  The  primary  right  of  the  car- 
rier is  to  be  paid  for  the  services  rendered,  and  Hke  other  bailees 
for  mutual  benefit  he  has  a  lien  on  the  goods  while  in  his  posses- 
sion for  the  payment  of  his  charges.  Except  as  controlled  by 
statute  the  rate  of  compensation  is  fixed  by  the  contract  of  bail- 
ment and  carriage,  though  it  cannot  be  more  than  a  reasonable 
rate.  It  is,  however,  the  right  of  the  state  to  regulate  rates  to  be 
charged  by  common  carriers,  providing  a  reasonable  rate,  and 
this  has  been  done  quite  generally.  The  Federal  government 
also  can  regulate  the  rates  to  be  charged  on  interstate  shipments. 
The  Interstate  Commerce  Commission,  created  by  Congress  in 
1887,  has  the  power  to  establish  and  fix  uniform  rates,  to  investi- 
gate complaints,  and  regulate  common  carriers  generally. 
Rebates  have  been  prohibited  and  discriminations  between 
shippers  have  been  declared  unlawful  by  statute.  The  purpose 
of  these  statutes  has  been  to  prevent  a  common  carrier  from 
favoring  a  shipper,  or  a  class  of  shippers,  at  the  expense  of 
some  other  person  or  class. 

EXAMPLES 

1.  Wilson  sued  a  railroad  company  for  $2700  as  excess  freight  on  a 
shipment  of  lumber.  Freight  was  charged  according  to  a  public  circular, 
but  Wilson  claimed  that  there  had  been  an  oral  agreement  for  a  lower  rate. 
The  goods  were  represented  by  a  bill  of  lading  which  stated  that  the  regular 
rates  should  apply.  Wilson  was  denied  recovery,  it  being  impossible  to  modify 
a  written  contract  by  oral  evidence.  Louisville  etc.  R.  R.  Co.  vs.  Wilson, 
119Ind.  352. 

2.  Cook  shipped  goods  by  a  railroad  and  paid  the  rate  of  $60  a  carload. 
He  later  discovered  that  the  railroad,  while  requiring  a  similar  rate  from  other 
shippers  of  like  commodities,  had  rebated  them  parts  of  this  amount  of  from 
$3  to  $20  a  car.  He  then  sued  for  $2700,  representing  the  excess  which  he  had 
paid  over  that  of  preferred  shippers  for  a  number  of  years,  and  was  allowed 
recovery,  the  duty  of  a  common  carrier  being  to  render  service  impartially. 
Cook  vs.  C.  R.  I.  &  P.  Ry.  Co.,  81  la.  55L 


/ 


242  EXCEPTIONAL   BAILMENTS 

Liability  for  Loss  and  Damage.  The  liability  of  a  common 
carrier  of  goods  is  an  exceptional  one,  being  that  of  an  absolute 
insurer  of  the  safety  of  the  property  while  in  its  custody  and 
control.  If  the  property  is  lost  or  injured  the  law  presumes  that 
the  carrier  was  negligent  and  he  can  escape  liability  only  by 
showing  that  the  loss  was  occasioned  by  (1)  Act  of  God;  (2)  Act 
of  public  enemy;  (3)  Act  of  the  Shipper;  (4)  Nature  of  the 
Goods ;    or  (5)  Act  of  Law. 

With  these  exceptions,  the  liability  of  a  common  carrier  for 
the  safe  delivery  of  the  goods  is  one  of  the  most  stringent  and 
severe  liabilities  known  to  law.  These  exceptions  are  briefly 
defined  as  follows : 

An  Act  of  God  is  some  unusual  force  of  nature,  without  the 
interposition  of  any  human  agency,  which  the  shipper  could  not 
anticipate.  Thus  lightning,  tempest,  cyclones,  or  floods  will 
excuse  the  carrier  from  liability  for  loss.  Because  of  its  extra- 
ordinary character  the  Johnstown  flood  in  Pennsylvania  in  1889 
was  an  act  of  God  which  relieved  the  railroads  from  liability. 
Ordinary  spring  freshets  which  occur  annually  and  which  might 
easily  be  guarded  against  do  not  excuse  the  carrier. 

An  Act  of  a  Public  Enemy  is  an  act  of  the  enemies  with  whom 
the  country  is  at  war.  The  acts  of  mobs,  rioters,  robbers, 
strikers,  and  insurgents  will  not  relieve  the  common  carrier 
from  liability. 

An  Act  of  the  Shipper  may  relieve  the  carrier  of  liability  for 
loss,  in  case  the  act  is  negligent  and  is  one  of  the  principal  causes 
of  the  resulting  loss.  Thus  the  misdirecting  of  goods  by  a  ship- 
per or  the  concealing  of  value  of  goods  when  asked  as  to  value 
thereby  preventing  the  carrier  from  knowing  how  to  safely  guard 
the  shipment,  are  acts  which  may  contribute  to  the  loss,  and 
relieve  the  common  carrier  of  liability. 

The  Nature  of  the  Goods  may  sometimes  cause  the  loss  and 
when  this  is  the  case  the  carrier  is  not  liable.  Thus  it  is  the 
nature  of  fruit  to  ripen  and  rot,  and  of  animals  to  trample  upon 
each  other,  and  when  the  loss  is  caused  in  this  manner,  the  com- 
mon carrier  is  not  liable  without  proof  of  other  negligence. 


EXCEPTIONAL   BAILMENTS  243 

Acts  of  the  Law  may  also  relieve  the  carrier,  as  when  goods  are 
seized  and  confiscated  by  a  public  officer  and  destroyed  by  him  as 
injurious  to  the  public  health  or  for  some  other  cause,  or  when 
goods  are  seized  under  a  levy  and  execution  against  the  ownei. 

EXAMPLES 

1.  Kinnick  shipped  a  carload  of  hogs  by  a  common  carrier.  The  hogs 
crowded  about  the  car  door  for  air  at  each  stop  of  the  train  and  several  were 
killed.  Kinnick  was  entitled  to  no  recovery.  Kinnick  vs.  C.  M.  &  St.  P.  Ry., 
69  la.  665. 

2.  A  flood  caused  by  a  cloud-burst  destroyed  Wald's  property  in  the 
possession  of  a  common  carrier.  The  carrier  was  not  responsible  to  Wald 
for  the  loss.     Wald  vs.  Railroad  Company,  162  111.  545. 

3.  Pingree  shipped  goods  by  a  carrier  to  Belden,  and  while  en  route 
the  goods  were  seized  by  a  sheriff  on  a  levy  and  execution  against  Pingree. 
This  levy  was  later  declared  invalid  and  illegal  by  the  court  and  Pingree  then 
sued  the  carrier  for  allowing  the  sheriff  to  seize  the  goods.  He  could  not 
recover  against  the  carrier,  who  was  not  bound  to  defend  against  an  officer 
of  the  law  with  papers  which  purported  to  be  regular.  Pingree's  proper 
remedy  was  against  the  sheriff.  Pingree  vs.  D.  L.  &  N.  R.  R.  Co., 
66  Mich.  143. 

4.  Hart  shipped  goods,  horses  and  provisions  by  a  carrier  and  placed 
his  servant.  Black,  in  the  car  to  care  for  the  animals  and  property.  While 
Black  was  asleep,  his  lantern  set  fire  to  the  goods,  which  were  destroyed. 
Hart  then  sued  the  railroad  for  his  loss.  He  was  denied  recovery.  -Hart 
vs.  C.  &  N.  W.  R.  R.  Co.,  69  la.  485.    ^ 

Limiting  Liability.  Limitations  of  liability  for  loss  or  damage 
to  goods,  when  contained  in  the  bill  of  lading  under  which  the 
goods  are  shipped,  are  binding  on  shippers  unless  contrary  to 
law  or  public  policy.  The  carrier  cannot,  however,  limit  its 
liability  for  at  least  ordinary  care.  In  1916  Congress  enacted  a 
law  making  all  limitations  of  liability  in  bills  of  lading  respecting 
interstate  shipments  unlawful,  unless  the  limitations  were  first 
approved  by  the  Interstate  Commerce  Commission.  It  also 
provided  that  no  such  approval  should  be  granted  in  respect 
to  ordinary  live  stock. 

Termination  of  Liability.  The  liability  of  the  common 
carrier  ends  when  the  goods  have  been  delivered  to  the  person 
to  whom  they  are  consigned.  The  carrier  is  responsible  for 
wrongful  delivery  to  unauthorized  persons. 


244  EXCEPTIONAL   BAILMENTS 

When  the  goods  are  at  the  end  of  their  journey  and  are  held 
for  the  order  of  the  consignee  by  the  railroad  as  a  mere  custodian, 
the  extraordinary  UabiHty  of  a  common  carrier  terminates,  and 
the  railroad  is  then  liable  only  for  ordinary  care  as  a  warehouse- 
man. The  Massachusetts  rule,  followed  in  Illinois,  Indiana, 
Missouri,  and  Iowa,  is  that  when  the  goods  are  stored  at  the  end 
of  their  journey  the  railroad  is  merely  a  warehouseman.  The 
New  Hampshire  rule,  followed  in  Vermont  and  Wisconsin,  is 
that  the  liability  as  a  common  carrier  continues  until  the  con- 
signee has  actually  received  the  goods,  or  has  had  an  opportunity 
of  inspecting  them  and  removing  them  in  the  ordinary  course  of 
business.  The  Michigan  rule,  followed  in  New  York,  is  that 
the  liability  as  a  common  carrier  continues  until  the  consignee  has 
been  notified  of  the  arrival  of  the  goods  and  has  had  a  reasonable 
opportunity  to  remove  them.  The  Michigan  rule  is  favored  in 
the  majority  of  other  states.  It  therefore  is  important  for  the 
carrier  to  notify  the  consignee  on  the  arrival  of  the  goods  and  for 
the  consignee  to  remove  them  within  a  reasonable  time. 

Hasse  shipped  goods  "C.  O.  D."  to  three  parties,  and  on  the  arrival  of  the 
goods,  two  of  the  parties  were  notified,  but  the  third  could  not  be  found, 
The  parties  notified  asked  permission  to  leave  the  goods  for  a  week.  Hasse 
was  notified  of  all  these  facts  and  telegraphed  to  hold  all  the  goods  at  the 
destination  until  they  were  paid  for.  Two  days  later  the  railroad  warehouse 
was  destroyed  by  fire  without  the  fault  of  the  company.  Hasse  sued  for  the 
value  of  the  goods,  but  was  denied  recovery,  the  liability  of  the  common 
carrier  having  been  changed  to  that  of  a  warehouseman.  Hasse  vs.  American 
Express  Co.,  94  Mich.  133. 

307.  Common  Carriers  of  Passengers.  Passengers  are  not 
"goods"  or  personal  property,  and  the  common  carrier  of  passen- 
gers is  not  a  bailee  in  the  strict  sense,  but  his  liability  is  very 
similar  to  that  of  a  bailee  and  is  therefore  considered  in  this 
chapter. 

Any  one  who  is  being  transported  in  the  vehicle  of  a  carrier 
for  hire  from  place  to  place,  or  who  is  at  a  station  of  a  carrier 
with  the  intention  of  entering  as  soon  as  possible  the  vehicle 
provided,  is  a  passenger.  It  is  not  essential  that  he  shall  have 
paid  his  fare,  though  he  must  be  ready  to  do  so  upon  demand, 
either  in  cash  or  by  ticket. 


EXCEPTIONAL   BAILMENTS  245 

Liability  of  Carrier.  The  liability  of  a  common  carrier  to 
passengers  is  quite  different  from  his  liability  for  shipments  of 
goods,  for  he  is  only  responsible  for  injuries  resulting  from 
negligence.  He  is  in  no  sense  an  insurer,  though  he  must 
exercise  a  high  degree  of  care  in  providing  suitable  and  safe  means 
of  transportation,  commensurate  with  the  class  of  service  which 
he  represents  himself  as  furnishing.  The  approaches  to  vehicles, 
platforms  and  stations  must  be  kept  in  a  safe  condition,  and 
protection  must  be  furnished  against  insult,  violence,  and 
theft.  The  common  carrier  is  responsible  for  the  conduct  of  his 
servants.     He  must  serve  all  comers  without  discrimination. 

EXAMPLES 

\.  After  Mrs.  Brown  purchases  a  ticket  from  the  N.  &  O.  R.  R.  Co.,  and 
while  she  is  checking  her  baggage  at  the  station,  she  is  injured  by  persons 
scuffling.  She  can  recover  damages  for  her  injury,  as  the  company  owed  her 
the  duty  of  providing  safe  facilities  for  the  transacting  of  business  incidental 
to  her  journey. 

2.  Putnam  was  riding  on  a  street  car,  and  becoming  annoyed  at  the 
actions  of  an  intoxicated  man,  requested  the  conductor  to  quiet  him.  This 
the  conductor  did  by  taking  him  to  the  front  platform,  where  he  was  quiet 
until  the  car  stopped,  when  the  intoxicated  man  seized  the  car-hook,  re-entered 
the  car  and  killed  Putnam.  The  street  car  company  was  not  responsible  for 
this  death,  the  conductor  having  no  reason  to  believe  that  there  was  any 
danger  after  he  quieted  the  intoxicated  man,  and  having  used  sufficient  care. 
Putnam  vs.  Broadway  etc.  Railroad,  55  N.  Y.  108. 

3.  Magoffin,  a  railway  mail  clerk,  while  on  a  mail  car  performing  his 
duties,  was  killed  by  a  collision  between  two  of  the  carrier's  trains.  He  had 
paid  no  fare,  but  was  riding  by  reason  of  a  contract  between  the  government 
and  the  carrier.  As  such  he  was  a  passenger,  and  the  collision  being  due  to  the 
negligence  of  some  of  the  railroad  employees,  the  carrier  was  held  liable. 
Magoffin  vs.  M.  P.  Ry.  Co.,  102  Mo.  540. 

Rights  of  Carriers.  In  order  to  protect  his  interests  and  to 
properly  conduct  his  business,  a  carrier  may  make  reasonable 
rules  and  regulations  for  the  operation  of  his  vehicles  and  conduct 
of  the  passengers,  and  may  insist  upon  being  paid  in  advance. 
I  The  carrier's  liability  ends  as  soon  as  the  passenger  has  left 
ithe  vehicle  and  has  had  a  reasonable  time  to  leave  the  platform 
or  station  of  the  carrier. 


246  EXCEPTIONAL   BAILMENTS 

Conditions  printed  on  tickets  bind  the  passenger  only  if  they 
are  reasonable  and  not  contrary  to  public  policy.  Whether  the 
liability  for  negligence  may  be  limited  by  contract  is  a  disputed 
question.  Such  limitation  is  allowed  in  England  and  New  York, 
but  the  United  States  Supreme  Court  and  most  state  courts 
regard  such  contracts  as  violations  of  public  policy,  although  it 
is  generally  permitted  for  the  carrier  to  limit  his  liability  to  a  pas- 
senger carried  without  charge. 

EXAMPLES 

1.  Parry  bought  a  reduced  rate  excursion  ticket,  which  stated  that  it 
was  good  for  transportation  only  on  certain  trains.  To  save  time  on  the  return 
trip  he  boarded  an  earlier  train,  the  conductor  of  which  refused  his  ticket,  and 
on  Parry's  refusal  to  pay  the  regular  fare  ejected  him.  Parry  sued,  but  was 
denied  recovery  of  damages  as  the  right  of  the  carrier  to  limit  the  ticket  by 
special  contract  in  this  manner  was  a  reasonable  one.  Penn.  R.  R.  Co.  vs. 
Parry,  55  N.  J.  L.  551. 

2.  Warner  had  been  a  passenger  on  a  train  and  was  told  to  alight  at 
a  place  some  distance  from  the  station.  He  was  required  to  cross  tracks 
and  in  doing  so  stepped  into  a  hole  in  the  planking  and  was  injured.  He  was 
awarded  damages  for  his  injury,  the  railroad  still  being  liable  to  him  as  a 
passenger.     Warner  vs.  Railway  Co.,  168  U.  S.  339. 

Baggage.  A  passenger  is  entitled  to  carry  with  him  such  per- 
sonal effects  as  are  necessary  for  his  journey.  The  carrier  may 
limit  the  amount  which  will  be  carried  free,  and  is  responsible 
as  an  insurer  only  for  personal  baggage  unless  he  accepts  other 
articles  as  baggage  with  full  knowledge  of  their  character. 

308.  Telegraph  and  Telephone  Companies  are  treated  as 
common  carriers  by  the  courts  of  many  states,  on  the  theory 
that  they  are  the  carriers  of  intelligence,  or  news.  They  are 
generally  held  liable  for  the  highest  degree  of  care,  and  are 
required  to  serve  all  who  apply  without  discrimination,  like  all 
common  carriers.  They  are  liable  for  the  non-delivery  of  mes- 
sages, for  erroneous  transmission,  and  for  failure  to  maintain 
efficient  and  proper  means  of  communication  in  accordance  with 
their  representations  to  the  public.  Their  rates  are  subject  to 
public  regulation. 

309.  The  Post  Office  Department,  or  that  branch  of  the 
government  which  carries  mails,  performs  functions  similar  to 


EXCEPTIONAL   BAILMENTS  247 

a  bailee  for  hire.  It  is  a  public,  or  common,  rather  than  a  private 
carrier.  But  while  its  operations  are  in  their  nature  like  those  of 
common  carriers,  yet  the  government  incurs  no  liability,  since 
the  sovereign  state  cannot  be  sued  except  by  its  own  consent 
and  consequently  the  courts  cannot  lay  down  rules  of  liability. 
The  liability  of  the  post  office  department  is  determined  by  its 
own  rules  and  regulations. 

REVIEW   QUESTIONS 

1.  Sibley  left  his  horse  over  night  in  the  stdble  of  Aldrich's  inn,  where  he 
was  a  guest.  The  horse  was  kicked  by  the  horse  of  another  traveler,  and 
his  leg  broken.  Aldrich  proved  that  this  was  due  to  no  fault  of  his.  Could 
Sibley  recover  for  the  damage?     Why? 

2.  Hinkle  sued  to  recover  damages  due  to  delay  in  shipment  of  a  car- 
load of  cattle.  The  cattle  were  injured,  had  to  be  fed  en  route,  and  missed  the 
Saturday  market.  The  contract  on  the  bill  of  lading  provided  that  the  rail- 
road should  not  be  liable  for  injuries  not  caused  by  the  gross  negligence  or 
fraud  of  its  employees.  It  was  admitted  that  the  delay  was  caused  by  care- 
lessness of  a  train  dispatcher  which  did  not,  however,  amount  to  gross  negli- 
gence.    Could  Hinkle  recover?     Why? 

3.  Springer,  the  employee  of  a  tenant  in  a  building,  was  injured  while 
riding  in  the  public  elevator  maintained  by  the  proprietor  of  the  building,, 
negligently  operated.  He  sued  the  proprietor  of  the  building  for  his  injury. 
Could  he  recover?     Why? 

4.  Udell  had  received  a  transfer  from  one  branch  of  a  car-line  to  another, 
and  was  required  to  cross  a  track  to  take  the  second  car.  While  so  doing,  he 
was  struck  by  a  trolley  pole,  which  broke  while  being  changed  from  one  end 
of  the  car  to  another.  This  was  the  pole  on  the  car  which  he  had  left.  Udell 
sued  for  damages  for  his  injury.     Could  he  recover?     Why? 


(I.  Kinds { 
12 


CHAPTER  XXXIII 

AGENCY 

General 
Special 

fl .  Express  agreement 


II.  Manner  of  Appointment 


III.  Duties  of 
Agent 


[2.  Implied  agreement 

To       [a.  Loyalty  to  trust 
Principal^b.  Duty  to  account 

[c.  Duty  to  use  skill 


To  third 
persons 


a.  Acts  in  excess  of 

authority 

b.  Acts  for  undis- 

closed principal 


IV.  Duties  of 
Principal* 


1.  To  agent 


To  third 
persons 


a.  Payment  of  compen- 

sation 

b.  Protection  against 

I9SS  and  injury 

a.  As  a  disclosed 

principal 

b.  As  an  undisclosed 

principal 


Duties  of 
Third  Persons 


{a.  On  contracts 
b.  For  wrongful 
acts 

2,  To  principal  [a.  On  contrcts 
<b.  For  wrong- 
ful acts 


{1.  By  original  contract 
2.  By  act  of  parties 
3.  By  operation  of  law 


248 


AGENCY  249 

310.  Agency  is  that  relation  founded  upon  the  express  or 
implied  contract  of  two  parties,  by  virtue  of  which  one  party 
is  employed  and  authorized  to  represent  and  act  for  the  other  in 
dealings  with  third  persons.  The  one  who  is  thus  authorized 
to  act  is  called  the  agent,  and  the  one  for  whom  he  acts  is  called 
the  principal. 

Agency  is  the  result  of  a  contract  between  the  parties,  and 
can  usually  exist  only  with  the  assent  of  the  principal.  The  law 
implies  the  right  of  one  person  to  act  as  agent  for  another  in  a 
few  limited  instances.  These  are:  (1)  the  right  of  the  wife  to 
buy  necessaries  on  her  husband's  credit,  in  which  case  she  acts 
as  her  husband's  agent;  (2)  the  similar  authority  of  an  infant 
child  to  buy  necessities,  in  certain  cases,  upon  the  father's  credit; 
and  (3)  the  authority  of  the  seller  of  personal  property  in  certain 
cases  to  sell  the  goods  still  in  his  possession  to  secure  his  pay. 
With  these  exceptions,  in  which  the  authority  is  created  by  law, 
the  authority  of  an  agent  must  be  created  by  a  contract,  express 
or  implied,  between  the  principal  and  the  agent. 

311.  Comparison  with  a  Servant.  The  relation  of  principal 
and  agent  bears  a  close  resemblance  to  that  of  master  and  servant, 
but  is  not  identical  with  it.  The  characteristic  of  an  agent  is 
that  he  is  a  business  agent  and  is  clothed  with  discretion  in  mat- 
ters of  his  employment,  having  the  power  to  bind  his  principal 
in  contracts  with  third  persons  when  such  contracts  are  within 
the  scope  of  his  authority.  The  function  of  the  servant  is  to 
execute  the  commands  of  his  master,  usually  upon  or  about 
things,  without  any  power  to  represent  his  master  in  business 
dealings  with  others. 

EXAMPLE 

If  A  says  to  B,  "Go  into  the  market  and  buy  me  a  horse,"  A's  purpose  is 
that  B  shall  go  out  and  find  a  person  who  has  a  horse  for  sale  and  make  a  con- 
tract with  that  person  to  sell  the  horse  to  A.  B  is  then  acting  as  an  agent. 
If,  when  he  brings  the  horse  to  A,  A  says  to  him,  "Put  the  horse  in  the  stable 
and  care  for  him,"  and  B  does  so,  he  is  then  a  servant. 

312.  General  and  Special  Agency.  If  agents  be  classed 
according  to  their  authority  to  act  for  their  principals,  they  may 
be  treated  as  (1)  general,  and  (2)  special.  A  general  agent 
is  on^  having  general  authority  to  act  in  reference  to  some  trans- 


250  AGENCY 

action  or  to  some  kind  or  series  of  transactions.  A  special  agent 
is  one  authorized  to  act  only  in  a  particular  event  and  in  accord- 
ance with  specific  instructions. 

EXAMPLES 

1.  A  was  appointed  agent  for  the  state  of  Illinois  by  B,  an  insurance 
corporation,  to  appoint  sub-agents,  accept  risks,  and  collect  premiums.  This 
made  him  a  general  agent.     Fishbaugh  vs.  Spunangle,  118  Iowa  337. 

2.  A  was  engaged  by  B  to  purchase  a  trotting  horse,  to  match  one 
already  owned  by  B  in  age,  size,  color,  and  price.  This  made  him  a  special 
agent.     Davis  vs.  Talbot,  137  Ind.  235. 

Since  the  powers  of  the  special  agent  are  limited,  third  persons 
dealing  with  him  must  find  out  just  how  far  he  has  authority  to 
bind  his  principal ;  otherwise  they  deal  with  him  at  their  own  risk. 

The  powers  of  a  general  agent  are  much  broader,  being  unre- 
stricted within  the  specified  field,  except  by  generally  recognized 
customs,  or  by  necessity.  If  the  principal  secretly  limits  the 
powers  of  his  agent,  and  deceives  a  third  person,  he  cannot 
escape  liability  by  such  secret  limitation.  The  general  agent  is 
considered  to  possess  the  power  to  bind  his  principal,  implied  by 
the  customs  in  his  line  of  business,  and  possesses  a  wide  discretion 
in  the  manner  of  performing  his  duties. 

EXAMPLES 

1.  Ames  is  made  a  special  agent  to  sell  a  farm  for  Bates,  who  owns 
several  farms.  Call  deals  with  Ames,  who  tries  to  convey  land  other  than  the 
particular  piece  which  he  has  been  authorized  to  sell.  Call  cannot  hold  Bates 
on  a  contract  made  in  this  manner,  as  he  failed  to  ascertain  the  nature  and 
extent  of  the  powers  of  Ames,  who  is  a  special  agent.  Ormsby  vs.  Graham, 
123  Iowa,  202;  Winders  vs.  Hill,  141  N.  C.  694. 

2.  Ames  was  made  sales  agent  for  Bates  in  certain  towns  and  counties 
in  Illinois  and  represented  himself  as  a  general  agent.  Call  bought  goods  from 
Ames,  on  terms  of  payment  and  at  a  price  not  authorized  by  Bates.  The 
contract  would,  however,  be  binding  upon  Bates,  as  Call  would  have  the  right 
to  rely  upon  the  apparent  authority  given  to  Ames,  and  those  ordinarily 
possessed  by  agents  of  that  class.  Walsh  vs.  Hartford  Fire  Insurance  Co., 
9  Hun.  (N.  Y.)  421. 

313.     Purposes  for  Which  Agency  May  Be  Created.     It  is  the 

general  rule  that  an  agency  may  be  created  for  the  transaction 
of  any  lawful  business,  and  that  whatever  a  person  may  lawfully 
do,  if  acting  in  his  own  right,  and  in  his  own  behalf,  he  may 
lawfully  delegate  to  an  agent. 


AGENCY  251 

314.  Who  May  Be  an  Agent.  Any  person  who  is  competent 
to  contract  generally,  is  competent  to  act  as  an  agent.  The  rule 
goes  further  and  renders  competent  to  act  as  agents  many  persons 
who  could  not  contract  for  themselves,  such  as  infants,  married 
women,  and  corporations.  The  reason  for  this  is  that  many 
persons  are  competent  to  execute  for  others,  what  they  would  be 
incompetent  to  plan  or  direct.  If  the  principal  is  willing  to  risk 
his  business  in  the  hands  of  one  who  is  incompetent,  he  cannot 
later  complain  of  the  legal  or  mental  disabilities  of  the  agent,  as 
against  innocent  third  persons. 

EXAMPLE 

Nelson  sent  his  minor  son,  Amos,  to  collect  money  due  to  him  and  to  pay 
his  bills.  He  was  later  sued  for  a  contract  made  by  Amos  for  him  incidental 
to  this  work.  He  was  liable  on  this  contract,  although  Amos  could  not  have 
validly  contracted  in  his  own  behalf.     Stanley  vs.  Nelson,  28  Ala.  514. 

315.  Manner  of  Appointment  of  Agents.  Except  in  those 
cases  in  which  the  law  creates  the  authority,  the  agent  can  only 
be  appointed  at  the  will  and  by  the  act  of  the  principal,  although 
that  will  may  find  expression  in  many  different  ways.  The 
authority  of  an  agent  to  bind  his  principal  rests  upon  an  agree- 
ment. This  agreement  may  be  (1)  express,  or  (2)  implied..  In 
general,  it  need  not  be  in  writing,  but  there  are  exceptions  in  some 
states.*  The  formal  method  of  appointing  an  agent  is  by  means 
of  a  legal  instrument  called  a  "Power  of  Attorney."  (This 
means  "Power  or  authority  to  act  as  my  agent.")  Such  instru- 
ments are  required  in  some  states  in  order  to  give  authority  to 
execute  conveyances  of  real  estate,  and  are  usually  required  to  be 
recorded  with  the  proper  county  officer  in  a  manner  similar  to  the 
recording  of  the  deed,  or  mortgage.  When  they  are  to  be 
recorded,  such  Powers  of  Attorney  must  be  executed  in  the  same 
manner  as  are  conveyances  of  real  estate;  for  instance,  they  must 
be  acknowledged  before  a  notary  public,  with  witnesses,  in  states 
requiring  such  formalities. 


*  In  some  states,  to  sell,  mortgage,  or  lease  lands,  an  agent  must  have  a 
written  authority.  Alabama,  California,  Colorado,  Illinois,  Michigan, 
Missouri,  Pennsylvania,  and  Ohio. 


252  AGENCY 

Power  of  Attorney 

ixnotD  ^Ci  0tn  ftp  ^f)t&e  ^effentSf,  That  I,  the  undersigned, 
J.  H.  Cox,  of  the  city  of  Galesburg,  County  of  Knox  and  Stale  of  Illinois,  have 
this  day  made,  constituted  and  appointed,  and  do  by  these  presents  make,  con- 
stitute and  appoint  Wm.  Bachrach,  of  the  City  of  Chicago,  in  the  County  of  Cook 
and  State  of  Illinois,  my  true  and  lawful  attorney,  for  me  and  in  my  name,  to  sell 
and  dispose  of,  absolutely,  in  fee  simple,  the  following  described  lot,  tract,  or 
parcel  of  land,  or  any  part  thereof,  situate,  lying  and  being  in  the  County  of  Cook, 
and  State  aforesaid,  to  wit:  Lot  10,  of  Block  8,  in  Cooper's  Addition  to  the  city 
of  Evanston,  according  to  the  recorded  plat  thereof,  for  such  price  or  sum  of  money, 
and  to  such  person  or  persons  as  he  shall  think  fit  and  convenient;  and  also  for  me 
and  in  my  name,  and  as  my  act  and  deed,  to  sign,  execute,  acknowledge  and 
deliver  such  deed  or  deeds,  and  conveyance  or  conveyances,  for  the  absolute  sale  and 
disposal  thereof,  or  of  any  part  thereof,  with  such  clause  or  clauses,  covenant  or 
covenants,  and  agreement  or  agreements,  to  be  therein  contained,  as  my  said 
attorney  may  think  fit  and  expedient;  hereby  ratifying  and  confirming  all  such 
deeds,  conveyances,  bargains,  and  sales  which  shall  at  any  time  hereafter  be  made 
by  said  attorney  touching  or  concerning  the  premises. 

3n  lE^e^tttnoni*  lSR\}tttof.  I  have  hereunto  set  my  hand  and  seal,  on  this 
tenth  day  of  August,  A.  D.  1915. 

J.  H.  COX.     [Seal] 
In  the  Presence  of: 

GEORGE  JONES, 

THOMAS  MURPHY. 

CouHty  of  Knox\  On  this  lOth  day  of  August,  A.  D.  1915,  personally 

State  of  Illinois   /  appeared  before  me  the  above  named  J.  H.  Cox,  known 

to  me  to  be  the  person  who  signed  the  foregoing  power  of 
attorney,  and  acknowledged  that  he  signed  the  same  as  of  his  own  free  will  and  ad 
and  for  the  purposes  therein  mentioned. 

[  Notary 's  Seal  ]  GEORGE  SMYTH E, 

Notary  Public,  Knox  County,  State  of  Illinois. 

Whenever  a  person  has  held  out  another  as  his  agent,  author- 
ized to  act  for  him  in  a  given  capacity;  or  has  knowingly  and 
without  dissent  permitted  such  other  to  act  as  his  agent  in  that 
capacity;  or  when  his  habits  and  course  of  dealing  have  been 
such  as  reasonably  to  warrant  the  presumption  that  such  other 
was  his  agent,  with  power  to  act  for  him,  he  cannot  later  deny  the 
existence  of  the  agency.  In  these  instances,  the  contract  of 
agency  is  implied  from  the  surrounding  circumstances. 


AGENCY  253 

EXAMPLES 

1.  Mrs.  Horton,  the  owner  of  some  personal  property  in  a  distant  city, 
requested  Jordan,  residing  there,  to  obtain  offers  on  the  goods.  Jordan 
communicated  a  number  of  offers  to  Mrs.  Horton,  who  finally  sold  the  goods 
on  her  own  account.  About  the  same  time  Jordan  also  sold  the  goods,  and  a 
su^t  was  started  between  the  purchasers  from  Mrs.  Horton  and  from  Jordan. 
It  was  decided  that  Jordan  had  no  authority  to  sell,  and  that  the  circumstances 
were  not  such  as  to  lead  others  to  believe  that  he  did.  The  purchaser  from 
Mrs.  Horton  was  given  the  goods.     Graves  vs.  Horton,  38  Minn.  66. 

2.  Hubbard  sued  Tenbrook  for  goods  sold  to  Sides,  as  the  agent  of 
Tenbrook.  It  was  proved  that  Sides  had  been  conducting  a  grocery  store 
in  his  own  name,  but  with  the  property  and  as  agent  of  Tenbrook,  to  whom  he 
remitted  the  profits.  Tenbrook  attempted  to  show  that  Sides  had  no  author- 
ity to  order  the  particular  kind  of  goods  which  Hubbard  had  sold  him.  This 
he  was  not  allowed  to  do  and  Hubbard  was  allowed  to  recover  the  value  of  the 
goods.     Hubbard  vs.  Tenbrook,  124  Pa.  St.  291. 

316.  Agent  Must  Not  Have  Adverse  Interests.     One  may 

not  be  an  agent  if  in  his  duties  or  relations  to  others  he  would  be 
compelled  to  assume  inconsistent  obligations.  He  owes  loyalty 
to  the  interests  of  his  principal,  and  he  cannot  discharge  the 
duties  of  his  position  fairly  when  his  own  interests,  or  those  of 
others  whom  he  also  represents,  are  adverse.  He  cannot  act  as 
agent  for  both  parties  in  one  transaction  unless  both  know  of  his 
double  agency.  Should  he  attempt  to  do  so  he  will  forfeit  his 
compensation. 

EXAMPLE 

Bell,  a  real  estate  broker,  acted  as  the  agent  of  McConnell  to  sell  certain 
real  estate.  For  this  he  was  to  receive  two  per  cent  of  the  price.  He  also 
acted  as  agent  for  Johnson,  who  desired  to  buy  real  estate  of  a  certain  descrip- 
tion and  was  to  receive  all  the  reduction  he  could  get  below  $5000.  He 
thereupon  arranged  a  sale  of  McConnell's  property  to  Johnson  for  $4500. 
Proof  of  these  facts  defeated  his  right  to  collect  his  commissions  from  McCon- 
nell, or  his  $500  from  Johnson,  his  interests  having  been  conflicting.  Bell  vs. 
McConnell,  37  Ohio  St.  396. 

317.  Ratification  is  the  adoption  by  one  person  of  the  act 
of  another,  who  without  authority  has  acted  as  the  agent  of  the 
first.  It  forms  a  means  by  which  one  may  assume  the  liabilities 
of  a  principal  after  the  performance  of  an  act.  Ordinarily  the 
contract  between  principal  and  agent  must  precede  the  doing  of 
the  service  for  which  the  agency  exists,  but  if  after  an  unauthor- 


254  AGENCY 

ized  act  has  been  performed  by  one  as  an  agent,  the  person  for 
whose  benefit  it  was  done,  accepts  the  act  as  his  own,  he  becomes 
a  principal. 

EXAMPLE 

Scott  sold  a  quantity  of  iron  rails,  which  were  laid  down  by  employees  of  a 
railroad  company,  under  the  direction  of  the  engineering  department.  When 
he  sued  for  the  price,  defense  was  made  that  the  rails  were  purchased  by  the 
president  of  the  railroad,  who  was  without  authority  to  bind  the  company, 
except  by  action  of  the  directors.  Scott  was  allowed  to  recover  the  price, 
however,  the  using  of  the  rails  with  knowledge  of  the  directors  having  been  a 
sufficient  ratification.     Scott  vs.  Middletown  etc.  R.  R.  Co.,  86  N.  Y.  200. 

318.  Notice  to  Agent  as  Notice  to  Principal.  All  facts  and 
information  which  come  to  the  agent,  with  reference  to  the  sub- 
ject matter  of  the  agency,  are  impliedly  notice  to  the  principal, 
since  the  agent  stands  in  his  place,  and  should  inform  his  principal 
of  all  facts  and  conditions  material  to  his  employment.  Knowl- 
edge received  before  the  relation  of  principal  and  agent  begins, 
or  that  acquired  independent  of,  and  outside  the  employment, 
does  not  serve  as  notice  to  the  principal  sufficient  to  charge  him 
with  knowledge  of  the  facts,  unless  the  agency  be  a  general  one. 

EXAMPLES 

1.  Mrs.  Hyatt  desired  to  escape  liability  on  a  lease  with  Clark,  which  had 
been  executed  for  her  by  her  agent,  Lake,  on  the  ground  that  Clark  was  carry- 
ing on  a  business  which  she  objected  to,  and  which  she  had  not  known  when  the 
lease  was  made.  Nothing  was  said  in  the  lease  as  to  the  kind  of  business  Clark 
was  to  conduct,  and  Lake  had  known  all  the  facts,  but  had  failed  to  communi- 
cate them  to  Mrs.  Hyatt.  The  court  did  not  allow  Mrs.  Hyatt  to  escape 
liability,  she  being  presumed  to  know  the  facts  which  her  agent.  Lake,  knew. 
Hyatt  vs.  Clark,  118  N.  Y.  563. 

2.  Ames,  a  fire  insurance  agent,  knew  that  Bates,  whose  property  was 
insured,  was  a  constant  violator  of  the  rules  of  the  company,  but  did  not 
inform  the  company  at  the  time  Bates  took  out  an  insurance  policy,  and  con- 
tinued to  collect  premiums.  After  a  fire  loss  the  company  sought  to  escape 
liability  on  the  ground  of  these  violations  of  its  rules.  This  it  could  not  do. 
Pringle  vs.  M.  W.  A.,  76  Neb.  384. 

REVIEW    QUESTIONS 

1.  Dutch  authorized  his  employee,  Black,  who  was  an  infant,  to  indorse 
a  note  and  further  negotiate  it.  This  Black  did  by  writing  across  the  back, 
"Dutch,  by  Black,  agent."  He  then  sold  it  to  Whitney,  and  the  maker 
failing  to  pay  it,  Whitney  sued  Dutch  on  this  indorsement.  Could  he  recover? 
Why? 


AGENCY  255 

2.  Ames  hired  Bates  as  a  clerk  and  allowed  him  to  order  goods,  to  answer 
letters  concerning  them,  and  to  pay  and  receive  money.  Later  Bates  ordered 
goods  from  one  of  the  firms  with  which  Ames  had  been  dealing,  requested 
that  they  be  delivered  to  a  dock  on  the  river-front,  and  then  absconded  with 
them.  Ames  refused  to  pay  for  these  goods  and  was  sued  for  the  price.  Was 
he  liable?     Why? 

3.  A  put  goods  into  the  hands  of  B  to  sell,  telling  him  to  recommend 
them  to  his  customers  and  to  get  the  best  price  he  could.  B,  without  A's 
knowledge,  made  fraudulent  and  untrue  representations  as  to  the  quality 
of  the  goods  and  thereby  induced  C  to  purchase  and  pay  for  them.  B  accounted 
for  the  money  to  A.  C,  on  discovering  the  fraud,  sued  A  for  breach  of 
warranty.     Could  he  recover  damages  from  A?     Why? 

4.  It  is  the  law  in  most  states  that  the  first  person  to  record  a  deed  from 
the  owner  of  property  in  the  office  of  the  register  of  the  deeds,  or  county 
recorder  for  the  county  in  which  the  land  lies,  secures  a  good  title,  even  against 
a  previous  purchaser  who  fails  to  record  his  deed,  unless  he  knew  of  the  prior 
deed.  Ames  owned  a  piece  of  land  and  deeded  it  to  Bates,  who  did  not  record 
the  deed.  Ames,  who  was  a  rascal,  later  deeded  the  same  land  to  Call,  who 
knew  nothing  of  the  previous  sale  and  recorded  his  deed.  All  the  deeds  were 
drawn  by  Johnson,  an  attorney,  who  acted  in  the  first  instance  for  Bates.,  and 
in  the  second  for  Call.     May  Bates  claim  the  land  against  Call?     Why? 


CHAPTER  XXXIV 
AGENCY  —  Continued 

319.  Relation  of  the  Parties.  There  are  three  persons  con- 
cerned in  the  law  of  agency,  viz.:  Agent,  principal,  and  third 
person.  These  each  have  rights,  duties,  and  liabiHties  to  the  other 
two.  Rights  will  not  be  discussed,  for  the  duties  and  liabilities 
of  one  party  are  generally  reciprocally  the  rights  of  the  other. 
For  convenience  these  duties  and  liabilities  will  be  discussed 
in  the  following  order : 

{1 .  To  his  principal 
2.  To  third  persons 


II.  Duties  of  Principal 


;1 .  To  his  agent 
2.  To  the  third  persons 


'1 .  To  agent 


III.  Duties  of  Third  Persom 

(2.  To  principal 

320.  Duties  of  Agent  to  the  Principal.  The  agent  must  be 
loyal  to  his  trust.  He  must  not  have  interests  adverse  to  his 
principal's.  He  must  account  to  the  principal  for  the  profits 
resulting  from  the  contract  of  agency,  less  his  own  compensation. 
He  cannot  sell  his  own  property  to  the  principal  without  disclos- 
ing the  facts,  nor  can  he  dispute  the  title  of  the  principal  to  the 
subject  matter  of  the  agency.  When  acting  as  an  agent,  he  is 
the  impersonation  of  the  principal  and  if  this  fact  be  remembered 
it  will  dispose  of  tJie  problems  which  arise  from  the  relation  of 
principal  and  agent.  When  he  acts  adversely  to  his  principal  he 
becomes  liable  for  the  damage  which  he  causes. 

EXAMPLES  / 

1.  A  confidential  agent  of  a  theatrical  manager  who  had  a  lease  on  a 
theater,  shortly  before  his  principal's  lease  expired,  secretly  secured  a  lease  of 

256 


AGENCY  '  257 

the  theater  for  a  new  term  of  years  for  himself  personally.  The  theatrical 
manager  could  compel  the  agent  to  transfer  the  lease  to  him.  Davis  vs. 
HamHn,  108  111.  39. 

2.  A  principal  employed  an  agent  to  buy  certain  mining  stock  for  him  at  a 
price  of  not  more  than  $150  a  share,  and  It  the  lowest  figure  possible.  The 
agent  notified  him  that  he  had  secured  the  stock  at  $150  a  share  and  sent  him 
stock  of  his  own.  On  learning  these  facts  the  principal  could  return  the  stock 
and  demand  his  money,  and  would  not  be  compelled  to  pay  the  agent  his 
commissions.     Curry  vs.  King,  6  Cal.  App.  568. 

Must  obey  instructions.  The  agent  is  liable  for  any  loss  or 
damage  which  may  be  caused  to  his  principal  by  a  failure  to 
follow  reasonable  and  lawful  instructions.  The  relation  of 
agency  depends  upon  a  contract  and  in  this  contract  the  principal 
may  make  any  conditions  which  he  desires.  He  also  has  the  right 
to  direct  the  work  which  the  agent  is  to  perform  for  him.  If  no 
express  conditions  are  specified,  the  agent  must  act  according  to 
established  customs  and  usages.  Any  breach  on  his  part  will 
render  him  liable  to  the  principal,  who  can  sue  and  recover  for 
the  resulting  damage. 

EXAMPLE 

Wilson,  a  collector,  was  directed  to  remit  money  by  mail  in  denominations 
of  $100,  but  he  remitted  a  large  package  of  bills  of  smaller  denomination, 
which  were  lost.  He  became  responsible  for  the  loss  to  the  principal,  having 
failed  to  follow  instructions.     Wilson  vs.  Wilson,  26  Pa.  St.  393. 

Agent  must  not  he  negligent.  The  care,  skill,  and  diligenc(. 
required  of  an  agent  must  be  commensurate  withthecircumstance; 
and  nature  of  his  undertaking.  He  must  use  the  same  degree  ot" 
care  as  other  persons  employed  in  similar  undertakings  would 
employ.  He  is  not  an  insurer  against  all  loss,  like  a  common 
carrier,  but  must  use  ordinary  care  at  all  times,  and  if  injury 
results  to  his  principal  from  a  failure  in  this  respect,  he  may  be 
sued  for  the  damage  thereby  occasioned. 

EXAMPLE 

Sears,  an  insurance  agent,  was  ordered  by  his  company  to  cancel  fire 
insurance  on  a  house  which  had  become  a  dangerous  hazard.  Sears  neglected 
to  cancel  the  insurance  and  the  house  was  destroyed,  the  company  being 
compelled  to  pay  the  owner  $1000  under  the  policy.  The  company  was  then 
entitled  to  recover  this  amount  from  Sears,  it  having  been  damaged  by  his 
negligence.     Franklin  Ins.  Co.  vs.  Sears,  21  Fed.  290. 


258  AGENCY 

To  Act  in  Person.  Another  duty  of  the  agent  to  his  principal 
is  to  act  in  person,  except  when  authorized  either  by  his  prin- 
cipal or  by  an  established  custom  to  appoint  sub-agents.  When 
an  agent  appoints  a  sub-agent,  the  liability  of  the  agent  extends 
only  to  the  use  of  care  and  prudence  in  the  selection  of  the  sub- 
agent,  but  does  not  extend  to  cover  injuries  or  wrongs  committed 
by  the  sub-agent  which  were  due  to  no  fault  of  his  and  which 
could  not  have  been  reasonably  expected. 

In  case,  for  example,  negotiable  paper  is  left  with  an  attorney 
or  a  bank  for  collection  in  another  town  or  state,  the  attorney  or 
bank,  as  agent,  has  the  implied  authority  to  forw^ard  the  instru- 
ment to  a  sub-agent  located  at  the  place  where  collection  must 
be  made.  The  agent  and  forwarder  discharges  his  duty  when  he 
Selects  a  suitable  and  reputable  sub-agent  to  collect,  and  will  not 
ordinarily  be  held  responsible*  for  neglect  or  misconduct  on  the 
part  of  the  sub-agent. 

EXAMPLES 

1.  Ames  was  employed  to  manage  a  piece  of  real  estate,  keep  it  in 
repair,  and  to  sell  it  for  a  price  which  he  deemed  suitable.  He  set  a  price  and 
employed  Bates  to  find  a  purchaser  at  that  price.  This  was  not  a  violation 
of  the  duty  which  Ames  owed  to  his  principal,  as  Bates  had  not  been  empow- 
ered to  use  any  discretion.     Penwick  vs.  Bancroft,  56  Iowa  527. 

2.  A  bank  iii  Burlington,  Iowa,  received  a  draft  for  collection  against 
a  New  York  party.  This  it  forsvarded  to  the  Metropolitan  Bank  of  New  York 
for  collection,  but  the  latter  bank  failed  to  present  and  protest  it  in  proper  time 
and  the  indorsers  were  thereby  discharged.  For  this  damage  the  owner  sued 
the  bank  in  Burlington,  Iowa,  but  was  denied  recovery,  his  only  remedy  being 
against  the  New  York  bank,  which  alone  had  been  negligent.  Guelich  vs. 
National  State  Bank,  56  Iowa  434.  ■ 

Duty  to  Account  for  Money  and  Property.  It  is  the  duty  of  the 
agent  to  keep  correct  accounts  of  his  transactions,  and  to  account 
to  his  principal  for  all  money  and  property  which  come  into  his 
hands  belonging  to  the  principal.  He  must  not  mix  the  prin- 
cipal's funds  with  his. own,  and  if  he  does,  he  will  be  responsible 
for  any  resulting  loss.  He  must,  when  required,  account  for  the 
profits  of  all  transactions  in  which  he  acted,  or  should  have  acted, 
as  the  agent  of  his  principal. 


*  In  New  York,  Michigan,  Ohio,  Indiana,  and  New  Jersey,  however,  the 
first  agent  is  held  liable  for  any  damages,  whether  these  were  caused  by  his 
own  negligence  or  not. 


AGENCY  259 

EXAMPLE 

An  agent  collected  money  for  his  principal  and  placed  it  in  a  money 
drawer  together  with  some  of  his  own  money,  not  in  separate  packages.  All 
the  money  was  stolen  without  the  agent's  fault.  He  was  compelled  to  repay 
the  amount  to  the  principal,  because  his  act  of  mingling  the  principal's  money 
with  his  own  made  him  the  debtor,  and  no  longer  the  agent,  of  the  principal. 
Naltnor  vs.  Dolan,  108  Ind.  500. 

Duty  to  Give  Notice.  It  is  also  the  duty  of  the  agent  to  give 
timely  notice  to  the  principal  of  all  facts  coming  to  his  knowledge 
and  relating  to  the  subject  matter  of  the  agency  which  it  is 
material  for  the  principal  to  know  for  the  protection  of  his 
interests. 

EXAMPLE 

Burbridge  was  the  agent  of  Devall,  operating  a  steamboat  for  the  latter. 
While  the  boat  was  being  thus  operated  it  was  seized  on  a  levy  under  execution 
by  creditors  of  Devall  and  sold  at  public  sale  for  $1000.  The  boat  was  reason- 
ably worth  $8000,  and  had  Devall  known  of  the  seizure  and  sale  he  could  have 
bid  on  it  and  prevented  the  sale  of  his  property  at  a  gross  sacrifice.  Devall 
was  allowed  to  recover  damages  for  the  amount  of  his  loss  from  Burbridge, 
whose  failure  to  give  notice  was  responsible  for  the  loss.  Devall  vs.  Bur- 
bridge, 4  W.  &  S.  (Pa.)  305. 

321.  Duties  of  Agent  to  Third  Persons.  The  ordinary 
purpose  of  the  agent  is  to  bring  his  principal  into  relations  and 
obligations  with  third  persons,  but  not  to  bind  or  obligate  him- 
self personally.  He  may,  however,  so  conduct  himself  as  to 
incur  a  personal  liability.  The  agent  is  personally  liable  for 
injury  to  third  persons  when  he  acts  beyond  the  scope  of  his 
authority,  or  when  he  makes  contracts  in  his  own  name  and 
not  that  of  the  principal.  He  is  also  personally  liable  for  any 
fraud,  assault  and  battery,  or  other  civil  wrong,  committed  by 
him,  even  though  he  is  acting  for  the  principal  at  the  time. 

EXAMPLES 
1.  Pitcairn  was  a  fire  insurance  agent  and  wrote  a  policy  for  Kroeger, 
the  policy  providing  that  the  insurance  should  be  void  if  any  gasoline  were  kept 
on  the  premises  without  written  permission.  Kroeger  called  attention  to  the 
fact  that  he  always  kept  a  small  amount  on  hand.  Pitcairn  informed  him 
that  no  written  permission  was  required  where  so  small  an  amount  was  kept 
and  Kroeger  accepted  the  policy  on  this  basis.  A  fire  destroyed  Kroeger's 
building  and  he  could  not  recover  for  his  loss  from  the  insurance  company,  on 
account  of  the  keeping  of  gasoline  without  permission.  He  was,  however, 
allowed  to  recover  his  damages  against  Pitcairn  personally  for  the  misrepre- 
sentation.    Kroeger  vs.  Pitcairn,  101  Pa.  St.  311. 


260  AGENCY 

2.  While  Osborne  was  at  work  as  a  carpenter  in  a  manufacturing  plant, 
Morgan,  the  superintendent,  negligently  suspended  a  tackle  block  above  him 
in  such  a  way  that  it  fell  and  injured  him.  Osborne  was  allowed  to  recover 
from  Morgan  for  his  injury,  even  though  the  latter  was  merely  the  agent 
of  the  corporation  which  employed  them  both.  (130  Mass.  102).  In  many 
states  where  the  so-called  "Employers'  Liability"  acts  are  in  force,  one 
workman  injured  by  another  can  sue  the  employer,  instead  of  the  fellow- 
workman,  for  damages. 

When  Agent  Exceeds  Authority.  If  an  agent  exceeds  both 
his  real  and  apparent  authority  in  making  contracts  for  his  prin- 
cipal, the  principal  will  not  be  bound  thereby.  The  agent, 
however,  will  be  personally  liable  for  any  damages  which  may 
have  been  suffered  by  the  party  with  whom  he  made  the  contract 
by  reason  of  his  wrongful  act. 

EXAMPLE 

Adams  was  authorized  to  sign  a  note  for  Burnham  for  $400  payable  in  six 
months,  payable  to  Anderson  if  Anderson  would  advance  this  amount.  Adams 
secured  the  money  and  signed  a  note  payable  in  sixty  days  to  Anderson.  This 
act  was  in  excess  of  authority  and  Burnham  did  not  thereby  become  liable 
on  the  note,  whereas  Anderson  could  recover  from  Adams  any  damages  which 
he  suffered,  in  this  case  $400  with  interest.     Anderson  vs.  Adams,  43  Ore.  621. 

Acting  for  an  Unknown  Principal.  In  order  to  escape 
personal  liability,  the  agent  must  disclose  to  third  persons  with 
whom  he  deals  that  he  is  an  agent  merely,  and  not  the  principal. 
If  he  conceals  the  fact  that  he  is  but  an  agent  acting  for  another, 
or  fails  to  reveal  the  identity  of  his  principal,  those  who  deal 
with  him  can  hold  him  personally  liable  on  contracts,  as  any 
credit  which  may  be  given  in  such  events  plainly  extends  to  the 
agent,  known  to  them. 

EXAMPLE 

Amans  sued  Campbell  for  wages  on  a  contract  which  he  had  made  with 
Campbell,  as  follows:  "I  hereby  agree  to  work  for  Campbell  &  Co.  during  the 
logging  season  of  1896  at  $80  a  month,  etc."  Campbell  was  merely  the  agent 
for  the  McCord  Lumber  Company,  which  fact  was  unknown  to  Amans  at  the 
time  of  the  employment.  Amans  was  allowed  to  recover  against  Campbell 
personally.     Amans  vs.  Campbell,  70  Minn.  493. 

An  agent  may  also  become  personally  liable  by  failing  to  use 
care  to  show  that  he  is  acting  merely  as  agent  for  another  in  the 
manner  in  which  he  signs  his  name.     The  proper  way  for  an 


AGENCY  261 

agent  to  sign  a  contract  for  his  principal  is  in  form  similar  to  the 
following:  "Amos  Black,  by  George  Wheeler,  his  agent."  The 
same  result  may  be  accomplished  by  merely  signing  the  name  of 
the  principal,  but  should  the  agent  sign  his  own  name  alone,  or 
sign  his  own  name  as  agent,  but  not  add  that  of  his  principal, 
he  will  fail  to  bind  his  principal  and  any  liability  will  be  personal 
with  him. 

REVIEW    QUESTIONS 

1.  Hayden  was  employed  by  Rose  to  buy  lands  for  him  in  Grant  county. 
Hayden  went  to  Grant  County,  bought  some  very  desirable  lands  for  himself, 
and  procured  other  land  nearby,  not  so  good,  for  Rose.  What  rights,  if  any, 
would  Rose  have  in  the  lands  purchased  by  Hayden?     Why? 

2.  Ames  directed  Bates  to  buy  a  large  quantity  of  grain  for  him  for 
immediate  delivery.  Bates  bought  the  grain,  took  a  warehouse  receipt  for 
the  amount  purchased,  and  delivered  this  to  a  carrier  with  instructions  to 
forward  the  grain  at  once.  The  elevator  in  which  the  grain  was  stored  burned 
before  it  was  removed  and  Ames  sued  Bates  for  the  loss.  Could  he  recover? 
Why? 

3.  Brazil  was  the  agent  of  Corcoran.  Without  disclosing  this  fact  he 
ordered  goods  of  Bryan,  who  agreed  to  sell  them  on  credit,  to  be  delivered 
within  thirty  days.  After  making  this  agreement,  and  before  delivery, 
Bryan  discovered  the  agency  of  Brazil,  but  nevertheless  delivered  the  got  ds. 
Later  he  sued  Brazil  for  the  price.  Brazil  proved  the  facts  stated  and  claimed 
they  constituted  a  defense.     Could  Bryan  recover?     Why? 

4.  Kerfoot  owned  certain  land  and  employed  Hyman  to  sell  it. 
Hyman  bought  it  himself,  concealing  that  fact,  and  taking  the  title  in  the 
name  of  a  third  person,  but  for  his  own  benefit,  and  at  the  same  time  resold 
half  of  it  for  more  than  he  had  paid  for  the  whole.  Has  Kerfoot  any  rights 
against  Hyman?     What? 

5.  Martine,  an  attorney,  was  employed  as  an  agent  to  lend  moneys 
on  first-class  bonds  and  mortgages.  He  made  a  number  of  loans  to  parties 
who  were  insolvent  and  took  mortgages  on  property  already  heavily  mort- 
gaged, reporting  such  loans  together  with  the  names  of  the  borrowers  and 
descriptions  of  the  properties  mortgaged,  to  his  principal,  Mrs.  Whitney,  a 
widow,  who  two  years  later  sued  him  for  damages.     May  she  recover?     Why? 


CHAPTER  XXXV 
AGENCY  —  Continued 

322.  Duties  of  Principal  to  Agent.  The  chief  duties  of  the 
principal  to  the  agent  are  (1)  to  pay  him  his  compensation,  and 
(2)  to  protect  him  against  loss  or  injury  sustained  in  the  perform- 
ance of  his  duty. 

323.  Agent's  Right  to  Compensation.  The  principal  must 
pay  the  agent  the  proper  compensation  for  the  services  rendered. 
The  amount  of  this  compensation  may  depend  upon  the  contract 
between  the  parties,  or  if  no  mention  is  made  of  the  amount  of 
compensation,  upon  the  reasonable  value  of  the  services  rendered. 
The  promise  of  a  principal  to  pay  an  agent  is  always  implied. 
This  rule  does  not  apply,  however,  when  the  services  were  ren- 
dered as  a  mere  act  of  kindness,  without  expectation  of  payment, 
such  as  are  ordinarily  freely  performed  by  members  of  a  family 
for  each  other;  and  the  agent  will  be  entitled  to  compensation 
in  juch  cases  only  by  express  contract. 

EXAMPLES 

1.  Wilson  performed  services  for  Dame  without  special  authorization. 
Dame,  however,  had  desired  the  particular  services  and  Wilson  had  performed 
them  expecting  to  be  paid.  After  Wilson  had  completed  his  work,  Dame 
accepted  the  benefits  and  otherwise  ratified  Wilson's  acts.  He  was  thereupon 
compelled  to  compensate  Wilson  for  the  reasonable  value  of  the  services. 
Wilson  vs.  Dame,  58  N.  H.  392. 

2.  Wallace  was  employed  as  an  agent  of  Floyd  for  one  year  at  an  agreed 
salary.  At  the  end  of  the  year  he  continued  to  perform  the  same  work  for 
another  year  and  then  sued  Floyd  for  the  reasonable  value  of  the  services, 
which  was  a  larger  amount  than  the  original  agreement  had  stated.  He  was 
allowed  only  to  recover  the  amount  stated  in  the  contract  for  the  first  year, 
as  compensation  for  his  continued  service,,  it  having  been  his  duty  to  notify 
Floyd  if  he  wished  to  alter  or  enlarge  the  contract.  Wallace  vs.  Floyd,  29 
Pa.  St.  184. 

When  Compensation  is  Earned.  If  the  parties  contract  in 
reference  to  the  conditions  under  which,  or  the  time  at  which, 

262 


AGENCY  263 

the  compensation  of  the  agent  shall  be  due,  such  contract  con- 
trols. In  the  absence  of  special  mention  of  these  matters  in  the 
agreement,  the  agent's  compensation  will  not  be  considered  to  be 
earned  until  he  has  fully  completed  the  thing  which  he  was  to  do. 
When  the  undertaking  is  completed,  however,  the  agent  becomes 
entitled  to  the  payment  for  his  services,  even  though  the  principal 
refuses  to  accept  the  benefit,  or  has  failed  to  be  benefited  by 
the  work.  This  question  most  frequently  arises  in  connection 
with  sales  of  real  property,  when  a  broker  has  been  employed 
to  find  a  purchaser.  The  broker  becomes  entitled  to  his  com- 
mission when  he  produces  a  purchaser  who  is  able  and  willing 
to  buy,  on  the  proposed  terms,  even  though  the  principal  does 
not  complete  the  sale. 

EXAMPLES 

1.  Gelatt  was  employed  by  Ridge  to  find  a  purchaser  for  his  business 
block  for  $23,000,  Gelatt  to  receive  a  commission  of  $1400  for  the  sale.  The 
next  day  Gelatt  produced  Brady  who  was  able  and  willing  to  buy  the  property 
at  that  price,  but  Ridge  increased  his  price  and  the  deal  was  not  consummated. 
Gelatt  was  nevertheless  entitled  to  his  commission,  having  done  all  that  he 
was  employed  to  do.     Gelatt  vs.  Ridge,  117  Mo.  553. 

2.  Peter  employed  Barthell  to  find  a  purchaser  for  certain  property, 
which  he  described,  at  a  specified  price.  Barthell  produced  a  purchaser  who 
was  able  and  willing  to  pay  the  price,  but  the  sale  was  not  completed,  Peter 
in  the  meantime  discovering  that  his  own  title  to  the  land  was  defective  and 
that  he  could  not  transfer  a  valid  title.  Barthell  was,  however,  entitled  to 
his  commission.     Barthell  vs.  Peter,  88  Wis.  316. 

If  Agent's  Authority  is  Terminated.  If  the  contract  of  agency 
has  not  been  made  for  a  definite  time,  the  principal  may  termi- 
nate the  employment  at  any  time,  upon  paying  the  agent  for  his 
services  up  to  that  time.  When  an  agent  has  been  employed  for 
a  definite  period,  however,  and  his  authority  to  act  for  his  prin- 
cipal is  terminated  without  good  cause  before  that  time,  he  may 
either  (1)  recover  the  reasonable  value  of  his  services  to  that 
time,  regardless  of  the  contract;  or  (2)  recover  for  the  damages 
he  has  suffered  in  an  action  for  breach  of  contract.  When 
an  agent  abandons  his  undertaking  without  good  cause,  he  may 
recover  for  the  services  previously  performed,  less  the  damage 
which  his  abandonment  of  the  contract  has  caused  his  principal. 


264  AGENCY 

EXAMPLES 

1.  Miss  Howard  contracted  to  serve  as  an  actress  for  Daly,  a  New 
York  opera  manager,  for  a  winter  season,  at  $10  a  week.  She  appeared  at 
the  proper  time,  but  Daly  had  withdrawn  the  play  in  which  she  was  to  have 
appeared.  She  sued  and  was  awarded  S140  as  being  the  loss  which  she  had 
suffered.     Howard  vs.  Daly,  61  N.  Y.  362. 

2.  Diefenback  was  employed  for  six  months  by  Stark  at  a  salary  to 
be  paid  for  the  entire  term.  At  the  end  of  four  months  Diefenback  quit  work 
without  cause  and  sued  for  two-thirds  of  the  agrfeed  compensation.  He  could 
recover  nothing.     Diefenback  vs.  Stark,  56  Wis.  462. 

Note. —  The  Wisconsin  rule  noted  in  the  above  case  is  severe  in  preventing 
any  recovery  where  the  agent  abandons  his  undertaking  without  cause.  A 
more  liberal  rule  prevails  generally  entitling  the  agent  to  recover  for  services 
less  the  amount  of  damage  caused  his  principal. 

Right  of  Agent  to  Reimbursement  and  Indemnity-  The  agent 
is  entitled  to  be  repaid  any  expenses  he  incurred  in  carrying  out 
his  principal's  business,  when  such  expenses  were  properly 
incurred  within  the  scope  of  his  employment.  No  expenses  can 
be  collected  from  the  principal,  however,  when  they  become 
necessary  because  of  the  agent's  negligence,  nor  can  he  claim 
expenses  when  his  services  were  to  be  performed  for  a  gross  sum. 

If  in  the  performance  of  an  authorized  act  for  the  principal, 
the  agent  invades  the  rights  of  others,  the  eventual  loss  should 
fall  upon  the  principal,  not  the  agent.  In  such  cases,  should  the 
agent  be  compelled  to  pay  damages  to  the  party  injured,  he  will 
in  turn  have  a  right  to  claim  indemnity  from  his  principal. 

EXAMPLES 

1.  Ames  is  employed  as  an  agent  by  Bates  to  sell  a  quantity  of  goods  on  a 
commission  of  ten  per  cent.  Bates  ships  the  goods  to  Ames,  who  is  compelled 
to  pay  storage  charges  before  finding  a  purchaser.  He  is  entitled  to  be  repaid 
for  these  charges  from  Bates. 

2.  Moore  was  ordered  by  Appleton,  his  principal,  to  cut  timber  on  certain 
land,  which  he  supposed  to  belong  to  Appleton.  The  land  belonged  to  John- 
son, who  sued  and  lecovered  damages  against  Moore.  Moore  in  turn  could 
recover  against  Appleton,  his  principal.     Moore  vs.  Appleton,  26  Ala.  633. 

Lien.  For  their  compensation,  agents  have  a  right  of  lien 
upon  the  property  which  is  the  subject  matter  of  the  agency. 
The  nature  and  extent  of  such  lien  is  governed  by  statutes  in  the 
several  states,  which  vary  considerably. 


AGENCY  265 

Right  to  Protection  from  Injury.  The  agent  is  entitled  to  be 
provided  with  a  safe  place  to  work  and  safe  instrurrients  with 
which  to  work.  The  right  to  protection  has  come  to  the  atten- 
tion of  the  courts  more  frequently  in  controversies  between  an 
employer  and  his  servant,  than  between  a  principal  and  his 
agent,  but  the  rules  which  must  be  observed  are  similar.  The 
employer  owes  to  his  servant  the  duties  of  providing  him  with 
(1)  a  safe  place  to  work;  (2)  safe  tools  and  machinery;  (3)  proper 
instructions  from  competent  superiors,  and  (4)  competent 
fellow  workmen.  If  the  servant  is  injured  because  of  the  failure 
of  the  master  to  provide  any  of  these  things  he  may  recover  for 
the  injury  from  the  master,  unless  he  has  contributed  to  the 
injury  by  his  own  negligence.  The  servant  may  be  compelled 
to  bear  the  liability,  however,  if  he  knows  the  machinery  to  be 
unsafe  and  fails  to  report  the  fact,  in  which  event  he  is  said  to 
have  assumed  the  risk. 

Statutes  have  recently  been  passed  in  many  states,  and  also 
by  Congress,  known  as  "Employers'  Liability  Acts,"  which 
further  define  the  duties  of  the  master  to  his  servant  and  the 
principal  to  his  agent.  These  statutes  vary  and  are  too  technical 
to  be  discussed  in  detail  in  this  work.  Their  general  tendency 
is  to  extend  the  liability  of  the  master  and  principal,  and  to 
protect  the  servant  or  agent,  by  denying  the  master  and  principal 
defenses  which  he  was  allowed  by  common  law,  among  these 
being  that  the  injury  was  caused  by  (1)  contributory  negligence; 
or  (2)  a  fellow  servant;  and  (3)  that  the  servant  or  agent  had 
assumed  the  risk. 

324.  Duties  of  Principal  to  Third  Persons.  Since  the  very 
function  of  agency  is  to  create  rights  in  third  persons  against 
the  principal,  or  in  the  principal  against  third  persons,  through 
the  medium  of  an  agent,  it  may  be  stated  as  a  general  rule  that 
the  principal  becomes  obligated  to  third  persons  by  any  acts,  or 
contracts,  done  or  made  in  his  behalf  by  an  agent  acting  within 
the  scope  of  his  authority  express  or  implied,  or  which  have  been 
subsequently  ratified  by  the  principal. 

It  has  been  noted  that  an  agent  may  contract  with  third 
persons  in  the  name  of  his  principal,  in  which  event  the  contract 
is  said  to  be  made  with  a  disclosed  principal ;  or  he  may  not  have 


266  AGENCY 

revealed  the  identity  of  the  person  for  whom  he  was  acting  as 
agent,  in  which  event  the  principal  is  an  undisclosed  principal. 
It  is  convenient  to  discuss  the  rights  of  third  persons  against 
these  two  classes  of  principals. 

Rights  against  Disclosed  Principals.  A  disclosed  principal  is 
liable  to  third  persons  for  all  the  lawful  contracts  of  his  agent, 
made  for  the  principal  and  in  his  behalf,  while  the  agent  was 
acting  within  the  scope  of  his  authority  and  in  the  course  of  his 
undertaking;  or  which  have  subsequently  been  ratified  by  the 
principal  with  full  knowledge  of  the  facts.  By  the  term  "scope 
of  the  authority"  is  meant  the  extent  of  the  powers  expressly  or 
impliedly  conferred  upon  the  agent. 

EXAMPLES 

1.  Johnson,  a  salesman  traveling  for  Mathias,  hired  a  livery  team  from 
Huntley,  overdrove  them,  injured  them,  and  Huntley  sued  Mathias  for  the 
damage.  He  was  allowed  to  recover,  the  hiring  of  the  team  having  been  for 
the  business  of  Mathias  and  within  the  authority  of  Johnson.  Huntley  vs. 
Mathias,  90  N.  C.  101. 

2.  Marston  sued  Pickert  for  breach  of  warranty  on  a  shipment  of  fish, 
which  he  had  purchased  from  a  salesman  employed  by  Pickert,  relying  upon 
the  salesman's  representation  that  the  fish  would  reach  LaCrosse  in  good 
condition.  Pickert  claimed  that  he  was  not  liable,  as  the  salesman  had  no 
authority  to  make  such  warranties.  Marston  was  allowed  to  recover,  it  being 
customary  for  such  agents  to  "be  authorized  to  do  whatever  is  usual  to  carry 
out  the  purpose  of  their  agency."     Pickert  vs.  Marston,  68  Wis.  465. 

Against  Undisclosed  Principals.  It  is  the  general  rule  that 
the  real  principal  in  a  transaction,  though  undisclosed  at  the  time 
of  making  the  contract,  may  be  held  liable,  when  discovered, 
upon  all  simple  contracts  made  in  his  behalf  by  his  agent,  even 
though  at  the  time  of  making  the  contract  the  party  dealing  with 
the  agent  did  not  know  that  he  was  an  agent  or  did  not  know  who 
his  principal  was,  and  gave  credit  to  the  agent  supposing  him  to 
be  the  principal. 

EXAMPLE 

Kayton  sold  goods  to  Bishop  for  $4500.  Bishop  was  really  acting  for 
Barnett,  but  did  not  disclose  that  fact,  Kayton  having  declared  that  he  "would 
not  sell  a  dollar's  worth  of  anything  to  that  man  Barnett."  Barnett  received 
the  goods.  Kayton  later  discovered  this  fact  and  sued  him  for  the  price. 
This  he  was  allowed  to  recover.     Kayton  vs.  Barnett,  116  N.  Y.  625. 


AGENCY  26/ 

Responsibility  for  Agent's  Acts.  Any  principal  is  responsible 
for  the  lawful  acts  performed  for  him  by  his  agent,  with  his 
authority.  Third  persons  have  a  right  to  rely  on  an  agent's 
apparent  authority  and  are  not  bound  by  secret  instructions  and 
restrictions. 

EXAMPLE 
McNear  appointed  Johnson  his  general  agent  to  sell  horses,  instructing 
him,  however,  not  to  warrant  the  soundness  of  one  particular  horse.  In 
violation  of  instructions  Johnson  warranted  the  soundness  of  that  horse,  selling 
it  to  Browning,  who  discovered  that  the  horse  was  unsound  and  sued  McNear 
for  breach  of  warranty.  He  was  allowed  to  recover  his  damages.  Browning 
vs.  McNear,  145  Cal.  272;  Aldrich  vs.  Wilmarth,  3  S.  Dak.  525. 

This  responsibility  extends  also  to  wrongful  acts  committed 
by  the  agent  while  the  agent  is  acting  in  the  execution  of  his 
undertaking  and  within  the  scope  of  his  authority.  It  is  not  to 
be  assumed,  however,  that  the  principal  is  responsible  for  every 
act  which  his  agent  may  commit.  If  the  agent  has  finished  that 
which  he  was  authorized  to  do,  or  if  he  leaves  the  principal's 
affairs  to  attend  to  some  matter  of  his  own,  and  then  commits  an 
act  which  injures  a  third  person,  the  principal  will  not  be 
responsible. 

The  principal  will  not  ordinarily  be  held  criminally  liable  for 
the  acts  of  his  agent,  unless  he  has  in  some  way  participated  in, 
countenanced,  or  approved  the  act;  but  he  may  become  liable 
to  a  penalty  for  permitting  his  agent  to  perform  acts  which  a 
statute  has  imposed  a  penalty  for  performing.  If,  for  example, 
a  statute  forbids,  under  penalty,  the  sale  of  liquors  to  minors, 
or  the  keeping  of  saloons  open  on  Sunday,  the  principal  will  be 
liable  for  the  penalty  if  the  forbidden  act  be  done  by  the  agent, 
even  though  the  principal  had  no  know-ledge  of  it. 

EXAMPLES 

1.  Richberger  went  to  an  express  office  to  procure  a  refund  of  money  due 
him  by  reason  of  overcharges  made  by  an  agent  of  the  company.  While 
paying  over  the  money  and  securing  a  receipt,  the  agent  cursed,  abused,  and 
maltreated  Richberger.  The  company  was  liable  to  pay  Richberger  damages 
for  these  acts.     Richberger  vs.  American  Express  Company,  73  Miss.  161. 

2.  Amanda  Craker  was  a  passenger  on  a  railroad.  While  traveling 
the  conductor  of  the  train  molested  her  and  kissed  her.  She  sued  and  recov- 
ered damages  from  the  railroad  company  for  this  assault,  although  the  con- 
ductor was  obviously  acting  outside  of  the  scope  of  his  authority.  Craker 
vs.  C.  &  N.  W.  R.  R.  Co..  36  Wis.  657. 


268  AGENCY 

REVIEW    QUESTIONS 

1.  Bonsall  paid  Wagner  $1000  for  Wagner's  promise  to  deliver  5000 
barrels  of  petroleum  oil  to  him  within  thirty  days.  He  relied  on  Wagner's 
credit  alone.  The  oil  was  not  delivered  in  the  time  promised,  and  Bonsall 
then  discovered  for  the  first  time  that  Wagner  was  the  agent  for  Beymer,  and 
had  made  the  contract  for  Beymer's  benefit.  Could  Bonsall  recover  from 
Beymer  for  breach  of  contract  for  failure  to  deliver  the  oil?     Why? 

2.  Komorowski  sued  Krumdick  for  the  price  of  wheat  which  he  claimed 
he  had  sold  to  Krumdick  through  Krumdick's  agent,  Grist.  Krumdick 
proved  that  Grist  had  been  his  agent  only  to  purchase  wheat  for  cash,  that 
this  wheat  had  been  sold  to  Grist  on  credit,  that  they  had  never  received  the 
wheat,  and  that  there  was  no  custom  allowing  such  agents  to  purchase  goods 
on  credit.     Could  Komorowski  recover?     Why? 

3.  Wilson  contracted  to  teach  school  for  ten  months  at  a  given  sum  per 
month,  but  at  the  end  of  six  months  the  school  authorities,  without  reason, 
closed  the  school.  Wilson  sued  for  damages.  What,  if  anything,  could  he 
recover?     Why? 

4.  Dalton,  while  stealing  a  ride  on  the  freight  train  of  the  Acme  Railroad, 
was  kicked  off  the  train  by  Murphy,  a  conductor,  falling  in  such  a  manner  as 
to  break  both  his  legs.  He  sued  the  company  for  damages,  the  company 
proving  that  it  had  a  rule  that  any  conductor  acting  in  this  manner  should  be 
immediately  discharged  and  that  Murphy  had  been  discharged.  Could 
Dalton  recover  damages?     Why? 

5.  Sarah  Hill  cared  for  her  father  during  a  long  period  of  sickness,  and 
on  his  recovery  sued  him  for  her  services  as  a  nurse.  She  had  always  resided 
in  her  father's  household  up  to  the  time  of  commencing  the  suit.  Could  shp 
recover?     Why? 


f 
CHAPTER   XXXVI 

AGENCY  —  Continued 

325.  Liabilities  of  Third  Persons  to  Agent.  On  Contracts. 
The  agent  usually  has  no  right  of  action  on  contracts  made  by 
him  for  his  principal.  He  is  merely  acting  for  the  principal  and 
both  the  rights  and  duties  which  he  creates  are  ordinarily  on 
behalf  of  his  principal.  If,  however,  the  agent  does  not  disclose 
the  fact  that  he  is  acting  for  a  principal,  he  acquires  a  right  to 
sue  personally  to  enforce  the  contract. 

EXAMPLE 

John  Deitz  sued  an  insurance  company  for  a  fire  loss,  he  having  taken  out 
the  insurance  policy  in  his  own  name  on  some  property  belonging  to  his  sister. 
It  was  admitted  that  if  Deitz  recovered  he  would  have  to  pay  the  money  over 
to  his  sister,  and  the  only  question  was  whether  the  suit  should  have  been 
brought  in  the  name  of  the  sister,  who  was  the  principal  of  Deitz.  The  court 
decided  that  Deitz  might  sue  as  he  had  not  disclosed  the  fact  that  he 
was  merely  an  agent  when  he  made  the  contract  of  insurance.  Deitz  vs. 
Insurance  Company,  31  W.  Va.  851. 

For  Wrongful  Acts.  The  agent  may  recover  damages  for 
injuries  to  the  property  of  his  principal,  and  in  such  cases  he  must 
account  to  the  principal  for  the  proceeds.  In  some  states, 
however,  this  right  is  limited  to  cases  in  which  the  agent  has  a 
personal  interest  in  the  property. 

'  EXAMPLES 

1.  Whittemore  circulated  slanderous  stories  about  Weiss,  a  salesman, 
so  that  Weiss  was  unable  to  negotiate  sales  with  many  of  his  former  customers. 
This  was  not  only  an  injury  to  the  employer  of  Weiss,  but  also  a  personal 
injury  to  him,  and  he  could  recover  damages  against  Whittemore.  Weiss 
vs.  Whittemore,  28  Mich.  366. 

2.  Holden,  acting  as  agent,  prepaid  freight  charges  on  goods  belonging 
to  his  principal.  The  railroad  failed  to  deliver  the  goods  in  good  condition, 
and  was  liable  to  Holden  for  damages,  he  having  a  special  property  interest 
in  the  goods  because  of  the  advances  he  had  made  on  them.  Holden  vs. 
Railway  Company,  73  Vt.  317. 

269  ' 


270  AGENCY 

326.  Liabilities  of  Third  Persons  to  Principal.  On  Con- 
tracts. Little  further  need  be  said  regarding  the  liabilities  of 
third  persons  to  the  principal.  It  is  fundamental  that  the  prin- 
cipal may  enforce  all  lawful  contracts  made  with  third  persons 
by  his  agent,  regardless  of  whether  or  not  the  fact  that  he  was 
the  principal  was  disclosed  at  the  time  of  making  the  contract. 

The  principal  also  has  the  right  to  follow  property  belonging 
to  him  which  his  agent  has  wrongfully  disposed  of,  acting  outside 
of  the  scope  of  his  authority,  and  to  recover  it  from  third  persons. 
If  an  agent  wrongfully  disposes  of  goods  which  he  had  no  right 
to  sell,  he  is  not  really  the  agent  of  the  principal  in  the  particular 
matter,  and  the  principal  may  recover  them  from  a  third  person 
in  whose  hands  they  are,  regardless  of  the  innocence  and  good 
faith  of  the  purchaser.  If  the  agent  disposes  of  money  or 
negotiable  instruments,  however,  the  principal  cannot  recover 
them  if  they  are  in  the  hands  of  innocent  holders  for  value. 
Purchasers  have  a  right,  however,  to  rely  upon  an  implied  author- 
ity of  a  general  agent  in  all  matters  customarily  handled  by 
such  agents. 

EXAMPLE 

Austin,  a  sales  agent  for  Carr,  a  publisher,  sold  to  Burton  six  typewriters 
used  in  Carr's  office.  The  sale  was  without  the  knowledge  of  Carr.  Carr 
was  entitled  to  recover  the  typewriters. 

For  Wrongful  Acts.  The  principal  may  recover  damages  for 
wrongs  done  or  injuries  committed  to  his  property  by  third  per- 
sons while  the  property  is  in  the  possession  of  an  agent,  in  the 
same  manner  as  though  no  agency  had  existed.  A  third  person 
may  also  become  liable  to  a  principal  if  he  maliciously  interferes 
with  the  agent  in  the  performance  of  his  duties,  or  wrongfully 
induces  the  agent  to  abandon  the  work  which  he  is  bound  to 
perform  for  his  principal.  He  may  further  become  liable  in 
damages  for  false  representations  made  to  the  agent  for  the  pur- 
pose of  inducing  him  to  contract  for  his  principal,  or  for  entering 
into  a  conspiracy  with  the  agent  to  defraud  the  principal. 

EXAMPLES 
1.     Hunt  maliciously  caused  the  arrest  of  Collins,  a  railroad  engineer, 
while  Collins  was  running  his  train.     This  caused  a  congestion  of  traffic  and 
the  railroad  was  entitled  to  recover  damages  against  Hunt.     Railroad  Com- 
pany vs.  Hunt,  55  Vt.  570. 


AGENCY  271 

2.  Simmons,  a  member  of  the  water  board  of  the  city  of  Boston,  with 
authority  to  purchase  land  for  a  reservoir,  entered  into  an  agreement  with 
Wilson,  by  which  Simmons  agreed  to  use  his  influence  to  secure  the  purchase 
at  an  increased  price  of  land  which  Wilson  bought,  and  to  share  half  the  profits. 
The  city  of  Boston  on  learning  of  these  facts  sued  Wilson  and  recovered  dam- 
ages.    City  of  Boston  vs.  Simmons  and  Wilson,  150  Mass.  461. 

327.  Dissolution  of  an  Agency.  The  relation  of  principal 
and  agent  may  be  dissolved  or  terminated  in  any  of  the  following 
ways : 

1.  By  lapse  of  time 

2.  By  accomplishment  of  object 


I.  By  Original  Contract 
II.  By  Act  of  the  Parties 

III.  By  Operation  of  Law 


1.  Principal 

2.  Agent 

1.  Death 

2.  Insanity 

3.  Bankruptcy 

4.  Marriage 

5.  War 


By  Original  Contract.  If  the  agency  was  originally  created  to 
endure  for  a  given  period,  or  until  a  certain  act  should  be  per- 
formed, the  expiration  of  that  time,  or  the  performance  of  the 
act,  terminates  the  agency. 

EXAMPLE 

Moore  employed  Stone  to  purchase  a  certain  piece  of  real  estate  for  him. 
This  Stone  did,  Moore  paying  the  price  and  paying  Stone  his  commissions. 
Some  months  later  Stone  purchased  the  same  property  at  a  sheriff's  sale  and  in 
an  action  by  Moore  to  recover  the  land  he  claimed  that  Stone  was  his  agent 
and  that  the  purchase  was  made  in  his  behalf.  Stone  was  entitled  to  the 
property,  however,  the  agency  having  terminated  before  his  second  purchase. 
Moore  vs.  Stone,  40  Iowa  259;  Short  vs.  Millard,  68  111.  292. 

By  Act  of  the  Parties.  The  principal  may  revoke  the  agency 
at  any  time,  provided  the  agent's  authority  is  not  coupled  with 
an  interest  in  the  subject  matter,  as  when  the  agent  has  paid  for 
the  right  to  exercise  the  powers  of  the  principal,  or  has  been 
given  property  to  sell  with  the  understanding  that:  the  proceeds 
of  the  sale  are  to  be  used  to  satisfy  a  debt  due  to  him.  Although 
the  principal  has  this  power  to  revoke  the  agency  at  any  time, 


272  .    AGENCY 

except  where  it  is  coupled  with  an  interest,  he  does  not  always 
have  the  right  to  so  so,  and  if  he  terminates  the  agency  in  violation 
of  the  original  contract  of  agency,  he  becomes  liable  to  the  agent 
in  damages.  The  principal  may  revoke  an  agency,  for  the 
improper  conduct  of  the  agent,  without  liability  for  damages. 

EXAMPLES 

1.  Ames  gives  Bates  authority  to  sell  property  for  him,  and  from  the 
proceeds  to  retain  enough  to  satisfy  a  debt  due  him  from  Ames.  This  is  an 
agency  coupled  with  an  interest,  which  Ames  can  not  revoke.  Marizon  vs. 
Pioche,  8  Cal.  522. 

2.  Ames  agrees  to  hire  Bates  for  a  period  of  six  months,  to  sell  goods. 
Ames  wrongfully  terminates  the  contract  at  the  end  of  two  months.  This 
he  has  the  power  to  do,  and  Bates  cannot  continue  to  work  for  him,  but  Bates 
may  recover  all  the  damages  which  he  has  suffered  because  of  Ames'  wrongful 
act.     Stinsgaard  vs.  Smith,  43  Minn.  11. 

Just  as  the  principal  has  the  power  to  revoke  the  agent's 
authority,  so  an  agent  may,  at  will,  terminate  the  agency,  subject 
to  his  liability  for  damages  if  the  termination  is  without  just 
cause  and  involves  a  breach  of  the  contract  of  employment. 
The  agent  may,  however,  be  justified  in  terminating  the  agency; 
this  would  be  true  if  he  were  required  to  do  an  unlawful  act. 

EXAMPLE 

Ames  agrees  to  act  as  sales  manager  for  Bates  for  a  period  of  one  year, 
but  at  the  end  of  six  months  quits  his  employment  to  accept  a  better  position 
with  a  rival  concern.  Ames  is  liable  in  damages  to  Bates  for  the  injury 
caused  Bates.     Barrows  vs.  Cushway,  37  Mich.  481. 

By  Operation  of  Law.  The  changes  in  the  condition  of  the 
parties  which  may  work  a  termination  of  the  agency  are  five 
in  number.  The  death  of  the  principal  or  of  the  agent  terminates 
the  agency,  except  in  case  the  agency  is  coupled  with  an  interest, 
in  which  case  it  survives  the  death  of  either  party.  Similarly, 
the  insanity  of  either  party  will  terminate  the  contract  of  agency 
as  to  all  persons  having  knowledge  of  the  insanity.  If  the  prin- 
cipal becomes  a  bankrupt  the  agency  is  dissolved,  and  if  a  business 
agent  becomes  bankrupt  the  principal  is  freed  from  further 
liability,  though  if  the  agency  was  for  the  performance  of  formal 
acts  not  involving  any  discretion  in  the  agent,  his  bankruptcy 
does    not    dissolve    the    relation.     At    common    law,    marriage 


AGENCY  273 

revoked  all  previous  agencies  created  by  the  woman ;  at  present, 
with  her  power  to  manage  her  separate  estate,  this  result  does  not 
generally  follow.  The  outbreak  of  a  "War  between  the  respective 
countries  of  the  principal  and  agent  will  terminate  an  agency, 
for  business  transactions  between  the  two  become  practically 
impossible. 

EXAMPLES 

1.  Wilson's  agent  had  authority  to  draw  money  from  a  bank,  deposited 
in  the  name  of  his  principal.  The  bank  honored  a  check  drawn  by  the  agent 
after  Wilson's  death.  This  was  unauthorized  and  the  bank  was  respon- 
sible to  Wilson's  estate  for  the  amount  of  the  check.  Farmer's  Loan  &  Trust 
Co.  vs.  Wilson,  139  N.  Y.  284. 

2.  After  Ames  became  insane,  his  agent.  Bates,  made  a  contract  with 
Call,  who  knew  of  Ames'  condition,  and  another  one  with  Dale,  who  was 
ignorant  of  it.  Call  could  not  enforce  his  contract,  while  Dale  could  do  so. 
Davis  vs.  Lane,  10  N.  H.  156;  Hill  vs.  Day,  34  N.  J.  L.  150. 

3.  Ames  became  bankrupt,  and  without  knowledge  of  that  fact.  Bates, 
his  agent,  made  a  contract  in  Ames'  name.  The  contract  could  not  be  en- 
forced.    Wilson  vs.  Harris,  21  Mont.  374. 

4.  Ames  was  an  agent  in  Spain  for  an  importing  house  in  New  York 
at  the  outbreak  of  the  Spanish-American  war.  The  agency  was  terminated, 
as  business  relations  between  the  two  countries  became  impossible.  Williams 
vs.  Paine,  169  U.  S.  55. 

328.  When  Dissolution  Takes  Effect.  An  agency  is  termi- 
nated as  far  as  the  agent  is  concerned  as  soon  as  he  is  notified  of 
the  termination,  except  in  the  case  of  death,  when  it  terminates 
as  to  all  parties  at  the  instant  of  death.  As  to  third  parties,  the 
rule  is  the  same;  the  agency  terminates  as  soon  as  they  have 
notice  of  it.  For  this  reason,  the  principal  should,  upon  termi- 
nating an  agency,  give  notice  to  all  third  persons  who  have  had 
dealings  with  the  agency;  otherwise,  he  may  become  liable  on 
future  contracts  made  with  them  by  his  agent  before  their  know- 
ledge of  its  termination. 

EXAMPLE 

Lampson  represented  that  his  agent  had  extensive  powers  in  the  manage- 
ment of  his  business  for  an  unlimited  time,  and  later  revoked  the  agent's 
authority,  but  failed  to  give  notice  subsequently  to  third  parties  who  had 
dealt  with  him  through  the  agent.  The  agent  subsequently  made  a  contract 
for  Lampson  with  Tier.  Lampson  was  bound  on  the  contract  with  Tier. 
Tier  vs.  Lampson,  35  Vt.  179. 


274  AGENCY 

REVIEW   QUESTIONS 

1.  Wilson  was  the  agent  for  Baker,  keeping  both  his  personal  and  the 
agency  account  in  the  New  York  National  Bank.  The  agency  account 
was  kept  under  the  name  of  H.  Wilson,  Agent,  the  bank  being  informed  that 
he  was  acting  for  Baker.  The  bank  pressed  Wilson  for  payment  of  a  note 
which  he  personally  owed  to  it,  and  he  authorized  thfem  to  apply  money  from 
the  agency  account  on  the  debt.  This  was  not  authorized  by  Bates,  who  sued 
the  bank  to  recover  the  money.     Could  he  recover?     Why? 

2.  Hunter,  as  manager  of  a  municipal  gas  works,  purchased  coal  from 
Lever,  who  had  agreed  to  pay  Hunter  a  commission  of  twenty  cents  a  ton  on 
coal  purchased,  in  order  to  induce  Hunter  to  purchase  from  him.  Hunter 
purchased  1000  tons  of  coal  from  Lever  for  the  municipality,  after  this,  and 
upon  Lever's  refusal  to  pay  the  commission,  sued  him.     Could  he  recover? 

3.  Mrs.  Hennessey  was  engaged  in  the  laundry  business  in  Chicago, 
and  on  her  refusal  to  enter  into  a  combination  to  increase  her  prices,  other 
laundrymen,  among  them,  Doremus,  induced  several  of  her  employees  to  quit 
work  unexpectedly  and  without  notice.  She  sued  for  damages,  and  Doremus 
contended  that  her  remedy,  if  any,  was  against  the  persons  who  quit  work, 
and  not  against  him.     Could  she  recover?     Why? 

4.  Goldsmith,  a  shirt  manufacturer,  employed  Turner  as  a  salesman. 
It  was  oi  jilly  agreed  that  the  employment  should  be  for  a  term  of  five  years 
at  a  stated  salary.  Goldsmith's  plant  burned  to  the  ground  at  the  end  of  two 
years  and  was  not  rebuilt,  and  he  did  not  further  employ  Turner,  who  sued 
him  for  breach  of  contract.     Could  Turner  recover  damages?     Why? 

5.  /Iworth  sued  Mrs.  Seymour  to  compel  the  conveyance  to  him  by 
her  of  one-half  a  tract  of  land.  Mrs.  Seymour  had  agreed  with  Alworth, 
who  conducted  an  abstract  office,  that  he  should  look  up  her  title  to  certain 
land,  and  prosecute  a  suit  for  her  benefit,  paying  all  expenses  to  recover  the 
land,  and  on  the  recovery  of  the  land,  he  should  be  entitled  to  a  one-half 
interest  in  it.  Alworth  began  work  and  after  he  had  spent  $200  Mrs.  Seymour 
terminated  the  employment  without  cause.  It  was  admitted  that  the  land 
was  worth  $25,000.     What,  if  anything,  could  Alworth  recover?     Why? 


CHAPTER   XXXVII 


PARTNERSHIP 

{1.   As  between  partners 
2.   As  affecting  third  persons 


II.   Kinds ^ 


1.  Active 

2.  Ostensible 

3.  Dormant 

4.  Limited 


{1.  Authority  of  partner 
2.  Relations  between  partners 
3.  Liability  to  creditors 


IV.  Disso- 
lution^ 


1.  How  effected* 


a.  By  agreement 

b.  By  act  of  parties 

c.  By  decree  of 

court 

d.  By  operation  of 

law 


{a.  Powers  after  disso- 
lution 
b.  Distribution  of  assets 

3.  Notice  of  dissolution 


329.  Definition.  A  partnership  is  the  relation  existing 
between  two  or  more  persons  who  have  combined  their  property, 
labor  or  skill  in  the  transaction  of  business  for  their  common 
profit.     The  parties  to  this  relation  are  called  partners. 

Partnership  resembles  agency  in  that  each  partner  who  tran- 
sacts business  for  the  firm  is  considered  as  an  agent  for  it.  Hence 
many  of  the  principles  of  agency  are  likewise  applicable  to 
partnership. 

330.  The  existence  of  the  contract  of  partnership  may 
be  determined  by  the  conduct  of  the  parties  as  well  as  by  their 
express  language. 

275 


276  PARTNERSHIP 

331.  Purposes.  The  two  purposes  of  the  contract  of  part- 
nership are  (1)  to  bind  the  partners  to  bear  the  possible  losses  of 
the  partnership  business,  and  (2)  to  entitle  the  partners  to  share 
in  the  profits  of  the  enterprise.  A  community  of  interest  is 
created  by  the  contract  of  partnership  and  the  partners  become 
jointly  liable  for  the  debts  and  obligations  of  the  enterprise. 
This  is  the  great  hazard  which  individuals  must  assume  w'hen 
they  enter  a  partnership,  for  not  only  can  the  money  which  they 
advance  to  the  firm  business  be  devoted  to  the  payment  of  its 
debts,  but  if  that  is  insufficient  they  may  be  forced  to  contribute 
to  the  paying  off  of  creditors  to  the  extent  of  their  private 
fortunes. 

332.  Conditions   Essential   to   Formation   of   Partnership. 

Before  there  can  be  a  valid  contract  of  partnership  there  must  be 
(1)  competent  parties,  (2)  a  legal  object,  or  subject  matter,  and 
(3)  a  mutual  assent  of  the  parties. 

Competent  Parties.  Any  person  may  be  a  partner  who  is 
capable  of  making  valid  contracts.  Aliens  may  be  partners 
except  in  times  of  war.  Infants  and  insane  persons  may  be  part- 
ners, but  their  contracts  are  voidable,  and  they  may  interpose 
the  defense  of  infancy  or  insanity  to  relieve  them  of  personal 
liability  further  than  the  money  they  have  actually  contributed 
to  the  assets  of  the  firm.  Married  women,  may,  under  the 
modern  statutes,  become  partners  with  persons  other  than 
their  husbands. 

EXAMPLES 

1.  Beall,  a  minor,  paid  Adams  $2900  to  be  admitted  to  Adams'  busi- 
ness as  a  partner.  The  firm  was  not  a  success.  Beall  disaffirmed  the 
contract  of  partnership,  and  sued  to  recover  his  money.  This  he  was  not 
permitted  to  recover,  as  he  had  enjoyed  the  benefits  of  the  partnership,  but  he 
was  permitted  to  escape  all  future  liabilities.     Adams  vs.  Beall,  67  Md.  53. 

2.  Vail  sued  Warren  Winterstein,  Alice  Tallmadge,  and  others  as  partners 
and  Mrs.  Tallmadge  sought  to  escape  liability  on  the  ground  that  she  was  a 
married  woman.  This  she  was  not  permitted  to  do  as  by  statute  she  was 
capable  of  entering  into  contracts.     Vail  vs.  Winterstein,  94  Mich.  230. 

Legal  Subject  Matter.  A  partnership  may  be  created  to  carry 
on  any  business  which  the  partners  might  lawfully  engage 
in  if  acting  separately.  Not  only  may  there  be  a  partnership  for 
carrying  on  a  mercantile  business,  but  the  partnership  may  be 


PARTNERSHIP  277 

for  farming,  mining,  the  practice  of  law,  medicine,  dentistry, 
or  some  other  enterprise  or  profession. 

Partnerships  cannot,  however,  be  created  to  engage  in  unlaw- 
ful businesses  or  those  opposed  to  public  policy.  Offices  of 
public  trust,  in  which  individual  responsibility  is  to  be  desired, 
cannot  be  executed  by  a  partnership,  nor  can  a  partnership  be 
formed  to  engage  in  gambling,  to  stifle  competition  and  control 
the  market,  to  aid  a  belligerent  in  time  of  war,  or  to  defraud  the 
customs  or  revenue  departments  of  the  government.  If  partner- 
ships be  formed  for  such  illegal  objects,  the  members  cannot  sue 
to  enforce  any  contract  tainted  with  such  illegality,  though 
actions  may  be  brought  against  the  members  of  such  a  partner- 
ship by  a  person  who  did  not  participate  in  the  illegality. 

EXAMPLES 

1.  Chester  sued  Dickerson,  Reed,  Jones,  and  Dewitt  for  fraudulent 
representations  concerning  the  sale  of  lands,  claiming  that  Reed  had  misrep- 
resented the  land  and  that  all  the  parties  were  liable  as  partners.  Dickerson, 
Jones,  and  Dewitt  attempted  to  escape  liability  on  the  ground  that  no  partner- 
ship could  exist  for  such  a  purpose.  The  court  permitted  Chester  to  recover, 
for  there  may  be  a  partnership  in  such  undertakings  as  well  as  in  dealings  with 
personal  property.     Chester  vs.  Dickerson,  54  N.  Y.  1. 

2.  McConoughy  sued  Craft  as  a  partner  for  a  division  of  partnership 
profits.  It  appeared  that  each  of  these  parties  had  owned  grain  elevators 
in  Illinois  and  had  combined  to  raise  the  price  of  grain  by  secret  agreements. 
It  was  for  the  profits  derived  from  such  agreements  that  this  suit  was  brought. 
Recovery  was  refused  as  the  contract  of  partnership  was  contrary  to  public 
policy.     Craft  vs.  McConoughy,  79  111.  346. 

333.  What  Acts  Create  a  Partnership.  Acts  sufficient  to 
create  a  partnership  differ  when  the  question  arises  (1)  between 
the  partners,  and  (2)  between  the  firm  and  third  persons. 

As  Between  Partners.  The  actual  intention  of  the  parties 
governs.  Mere  community  of  interest,  even  as  the  owners  of 
specific  property,  does  not  of  necessity  constitute  the  co-owners 
partners.  Even  the  sharing  of  profits  in  a  business,  though  it 
raises  a  presumption  of  the  existence  of  a  partnership,  may  be 
shown  to  have  existed  by  some  other  contract  than  that  of 
partnership. 


278  PARTNERSHIP 

EXAMPLE 

Smith  sued  Bodine  for  his  services  as  a  salesman,  which  by  agreement 
between  the  parties  was  to  be  ten  per  cent  of  the  profits  of  sales  made  by  him. 
The  defense  was  made  that  the  relation  between  them  was  a  partnership  and 
that  Smith's  only  remedy  was  to  bring  an  action  in  a  court  of  equity  known  as 
a  suit  for  an  accounting  to  distribute  the  partnership  property.  Smith  was 
allowed  to  recover,  as  the  parties  had  intended  no  partnership.  Smith  vs. 
Bodine,  74  N.  Y.  30. 

The  sharing  in  both  profits  and  losses  of  a  business  is  strong 
proof  that  the  parties  intended  a  partnership. 

EXAMPLE 

Smith  agreed  to  investigate  and  locate  desirable  timber  lands,  reporting 
the  same  to  Putnam,  who  if  he  approved  should  advance  the  money  necessary 
to  purchase  the  lands,  he  to  be  repaid  with  interest,  and  on  the  sale  of  the  lands 
both  Smith  and  Putnam  to  share  equally  in  the  profits  or  losses.  This  made 
them  partners.     Smith  vs.  Putnam,  107  Wis.  155. 

As  Affecting  Third  Persons.  When  persons  have  held  them- 
selves out  as  partners,  in  a  particular  business,  and  have  thereby 
induced  others  to  deal  with  them  in  that  capacity,  they  cannot 
later  assert  that  there  was  no  partnership  between  them,  and  that 
one  of  them  only  is  liable  for  the  debts  of  the  enterprise. 

EXAMPLE 

Clark  sued  Webster  for  a  debt  owed  to  him  by  the  firm  of  Rigney  & 
Webster.  Webster  denied  that  he  was  a  partner  of  Rigney  and  proved  that 
at  the  time  the  debt  to  Clark  was  contracted  he  had  an  agreement  with  Rigney 
that  he  should  be  responsible  for  only  one-third  of  the  firms  debts.  Clark, 
however,  could  recover  in  full  from  Webster. 

334.  Elinds  of  Partners.  Partners  may  be  either  (1)  active; 
(2)  ostensible;   (3)  dormant;  or  (4)  limited. 

An  active  partner  is  one  who  is  a  partner  for  all  purposes,  both 
as  to  other  members  of  the  firm  and  as  to  third  persons,  being 
entitled  to  share  in  the  profits  of  the  business  and  liable  for  its 
losses. 

An  ostensible  partner  is  one  who  is  a  partner  in  name  only, 
allowing  himself  to  be  held  out  to  third  persons  as  a  member  of 
the  partnership,  when  in  fact  he  is  not.  As  such  he  is  not 
entitled  to  share  in  the  profits  of  the  enterprise,  but  may  become 


PARTNERSHIP'  279 

liable  for  the  losses  of  the  business  to  all  third  persons  who  have 
relied  upon  the  use  of  his  name. 

A  dormant  or  concealed  partner  is  sometimes  called  a  silent 
partner.  He  is  not  published  to  the  world  as  a  partner,  but  in 
fact  is  one.  Being  unknown  as  a  partner,  he  is  in  a  position  to 
share  in  the  profits  of  a  prosperous  business,  and  to  avoid  personal 
responsibility  in  case  of  a  failure.  His  position  is  analagous  to 
that  of  the  undisclosed  principal  in  agency,  for  should  it  be  dis- 
covered that  he  is  a  partner  he  may  be  held  liable  for  all  debts 
and  obligations  of  the  firm  in  the  same  manner  as  though  he  had 
been  an  active  partner. 

A  limited  partner  is  one  whose  rights  to  share  in  the  profits, 
and  liability  to  participate  in  the  losses,  are  limited.  This 
limitation  can  be  secured  only  when  special  statutes  in  the  several 
states  are  complied  with.  (For  instance,  as  to  publication  of 
notice,  use  of  Limited  as  part  of  firm  name,  etc.)  Ordinarily 
a  partner  is  liable  for  the  entire  debts  of  the  firm,  although  he 
may  demand  contribution  from  his  fellows. 

335.  Articles  of  Partnership.  It  is  not  necessary  that  the 
contract  of  partnership  be  a  formal  written  instrument,  but  in 
important  undertakings  it  is  better  to  have  it  so.  If  there  be  no 
written  agreement,  the  law  will  imply  the  rights  and  duties  of  the 
parties  from  the  nature  of  the  business  transacted,  but  if  special 
provisions  be  desired,  the  agreement  should  be  embodied  in  a 
written  document,  known  as  the  "Articles  of  Partnership." 

Among  the  incidents  of  a  partnership  is  usually  a  firm  name, 
though  this  is  unnecessary.  It  is  proper,  however,  for  a  partner- 
ship to  adopt  a  firm  name,  under  which  to  transact  business,  if  it 
be  desired.  Restrictions  are  placed  in  New  York  and  Pennsyl- 
vania upon  the  use  of  the  name  of  a  person  not  actually  interested 
in  the  business,  and  upon  the  use  of  the  term  "&  Co."  in  the  firm 
name  of  a  partnership,  the  latter  being  reserved  for  corporations. 
In  other  states,  the  latter  term  is  quite  frequently  used  as  a  part 

the  partnership  name. 


jit] 

■ 


280  PARTNERSHIP 

Articles  of  Partnership 

The  following  is  a  simple  form  of  articles  of  partnership  for 
George  Baxter  and  Henry  Olds,  partners  in  the  retail  clothing 
business,  in  Galesburg,  Illinois. 

tE/btS(  ^gretntent  made  this  17th  day  of  August,  1916,  by  and  between 
George  Baxter  and  Henry  Olds,  both  of  Galesburg,  Illinois. 

JBSitntmtti  that  the  said  parties  hereby  agree  to  become  partners  in  the 
business  of  selling  men's  clothing,  furnishings,  and  other  merchandise  incidental 
thereto,  at  retail,  under  the  firm  name  of  "  The  Hub,"  for  a  term  of  five  years  from 
the  date  hereof,  upon  the  terms  and  conditions  hereinafter  stated: 

1.  That  the  business  shall  be  carried  on  at  No.  16  John  Street,  in  the  city 
above  named,  on  the  premises  where  the  same  is  now  being  carried  on  by  George 
Baxter,  or  at  such  other  place  as  the  parties  hereto  may  mutually  agree. 

2.  That  each  of  said  partners  shall  contribute  the  sum  of  $10,000  to  the  said 
partnership,  and  that  the  said  share  of  Henry  Olds  shall  be  paid  in  cash  into  the 
assets  of  said  firm,  and  that  the  said  share  of  George  Baxter  shall  be  paid  by  trans- 
ferring to  the  said  partnership  all  the  goods,  wares,  merchandise  and  fixtures  now 
located  on  said  premises,  together  with  the  good-will  of  the  business  conducted  by 
him  heretofore. 

3.  That  proper  books  of  account  shall  be  kept  by  the  firm  and  that  semi- 
annual dividends  shall  be  declared,  each  of  said  parties  sharing  equally  in  any 
profits  of  the  business. 

4.  That  each  party  shall  be  at  full  liberty  to  draw  $100  monthly  for  his  own 
private  use,  on  account,  of  his  semi-annual  dividend. 

5.  That  neither  party  shall  become  bail  or  surety  for 'any  other  person; 
nor  lend,  spend,  give,  or  make  away  with  any  part  of  the  partnership  property; 
or  draw  or  accept  any  bill,  note,  or  other  security  in  the  name  of  said  firm,  except 
in  the  due  course  of  the  partnership  business. 

6.  That  at  the  expiration  or  termination  of  the  said  partnership,  a  valuation 
and  similar  account  of  the  stock,  effects,  capital,  and  good-will,  if  any,  of  the  said 
firm  shall  be  taken,  and  the  balance  of  such  account  then  found  to  exist  shall  belong 
to  the  said  parties  in  equal  shares,  and  be  realized  and  divided  accordingly,  and 
thereupon  each  party  shall  execute  mutual  releases  to  the  other. 

7.  That  in  the  management  of  the  firm  business,  each  of  said  parties  shall 
devote  his  entire  time,  and  shall  not  engage  in  any  other  business  or  undertaking 
without  having  first  obtained  the  written  consent  of  the  other ;  that  each  party  shall 
have  an  equal  voice  in  the  management  of  the  business  of  said  firm. 

3n  WSiitntii  QSHtjereof  the  parties  have  set  their  hands  and- seals  the  day  and 
year  first  above  written. 

In  the  presence  of  GEORGE  BAXTER.    [Seal] 

SCOTT  CHAMBERS.  HENRY  OLDS.  [Seal] 

JASPER  HORN. 


PARTNERSHIP  281 

REVIEW    QUESTIONS 

1.  Valentine  and  Jordan,  as  partners,  manufactured  machinery.  Desir- 
ing to  borrow  money,  they  secured  $8000  from  Meehan,  a  banker,  agreeing  to 
pay  a  note  for  that  amount  with  interest  at  the  end  of  a  year,  and  also  to  give 
him  as  a  bonus  one-third  of  the  profits  for  the  year.  At  the  end  of  a  year  the 
note  was  not  paid  and  Meehan  sued  for  the  $8000  with  interest.  Defense  was 
made  that  Meehan  could  not  collect  at  law  for  this  amount  as  he  was  a  partner. 
Could  he  recover?     Why? 

2.  Roberts  represented  to  Cornhauser  that  he  and  Diamond  were 
partners  doing  business  under  the  firm  name  of  M.  E.  Roberts  &  Co.  Corn- 
hauser sold  him  merchandise  on  credit,  and  it  not  being  paid  for  sued  both 
Roberts  and  Diamond.  Diamond  proved  that  he  had  not  shared  in  the  profits 
or  losses  of  the  business,  but  had  merely  allowed  Corfthauser  to  use  his  name  for 
a  payment  to  him  of  S20.  The  account  for  which  Cornhauser  sued  was  $5000. 
Could  Cornhauser  recover?     Against  whom?     For  how  much?     Why? 

3.  Smith  and  Jones,  together  with  Brown,  a  dormant  partner,  transacted 
business  under  the  firm  name  of  Smith  &  Jones.  Gordon,  who  knew  nothing 
of  Brown's  connection  with  the  business,  sold  them  $2000  of  goods.  Later, 
on  discovering  Brown's  interest  he  sued  the  three  —  Smith,  Jones,  and  Brown 
—  for  the  value  of  the  goods.  Smith  and  Jones  were  both  insolvent  and  if  any 
recovery  were  allowed  Brown  would  have  had  to  pay  the  account.  By  the 
articles  of  partnership  he  was  entitled  to  only  a  ^  interest  in  the  profits. 
What  amount,  if  any,  could  Gordon  recover?     Against  whom?     Why? 

4.  A  firm  doing  business  under  the  name  of  "The  Unique  Clothes  Shop" 
is  composed  of  Johnson  and  Uttley.  Explain  how  Warren  may  become  a 
dormant  partner  and  Morgan  an  ostensible  partner. 


CHAPTER  XXXVIII 
PARTNERSHIP  —  Continued 

336.  Partner's  Authority.  By  entering  into  a  partnership, 
each  member  confers  upon  the  others  the  authority  to  act  for 
him.  E^ch  partner  has  the  right  of  an  agent  to  bind  the  partner- 
ship in  all  transactions  within  the  scope  of  the  partnership 
business. 

As  each  partnership  has  certain  objects,  or  exists  for  the  trans- 
action of  certain  forms  of  business,  third  persons  are  expected  to 
take  notice  of  the  general  scope  of  the  business.  If,  through  one 
partner,  they  extend  credit  to  the  firm,  or  enter  into  contracts 
with  the  firm,  which  are  obviously  outside  the  scope  of  the  part- 
nership business,  they  will  be  assumed  to  have  knowledge  of 
this  fact  and  can  hold  liable  only  the  partner  with  whom  they 
contracted,  unless  he  had  express  or  implied  authority  from 
his  associates. 

EXAMPLES 

1.  C.  I.  and  C.  C.  Roosevelt  formed  a  partnership  for  the  purpose  of 
refining  sugar  and  advertised  the  fact  in  the  newspapers.  C.  I.  Roosevelt 
gave  the  firm  note  to  pay  for  a  quantity  of  brandy,  and  when  the  note  became 
due  both  partners  were  sued.  C.  C.  Roosevelt  was  not  bound  by  this  act  of 
his  partner,  because  it  should  have  been  apparent  to  anyone  that  incurring 
a  debt  for  a  liquor  shipment  was  outside  the  scope  of  the  partnership  business. 
Livingston  vs.  Roosevelt,  4  Johns.  (N.  Y.)  251. 

2.  Sloan  and  Patten  were  partners,  practising  law.  Patten  gave  a  firm 
note  to  pay  for  office  rent.  Sloan  could  not  be  held  on  this  note,  on  the  ground 
that  in  a  non-trading  firm,  such  as  this,  neither  partner  has  the  implied  author- 
ity to  bind  the  firm  on  negotiable  paper,  and  that  any  person  dealing, with 
them  is  charged  with  notice  of  this  fact.  Smith  vs.  Sloan,  37  Wis.  285.  This 
distinction  between  the  power  of  a  partner  in  a  trading,  or  mercantile  firm,  and 
a  non-trading  firm  is  generally  followed  when  the  right  of  a  partner  to  bind 
the  firm  on  negotiable  paper  is  in  question. 

337.  When  Partners  May  Bind  Firm.  The  firm  is  respon- 
sible for  any  acts,  admissions,  or  representations  of  a  partner 
transacting  partnership  business.  Any  fraud  he  may  commit 
in  such  matters  will  bind  the  firm,  for  it  has  represented  him  to  be 

282 


PARTNERSHIP 


283 


a  person  worthy  of  confidence,  and  further,  it  has  derived  the 
benefit  of  the  fraud.  A  partner  may  give  receipts  for  debts 
owing  to  the  firm  for  value,  and  in  the  case  of  trading  or  mer- 
cantile partnerships  may  issue  negotiable  paper,  binding  the  firm. 

EXAMPLES 

B  1-  Rosenkrans  and  Weber  were  partners  in  the  wholesale  jewelry  business 
in  Chicago.  Having  sold  a  supply  of  goods  to  Barker,  a  resident  of  Iowa, 
which  Barker  failed  to  pay  for,  Weber,  by  fraudulent  representations,  induced 
him  to  go  to  Chicago  and  then  had  him  arrested  in  an  effort  to  make  him  pay 
for  the  goods.  The  arrest  was  wrongful  and  on  his  release  Barker  sued  both 
partners  for  false  imprisonment.  Although  Rosenkrans  resided  in  Wisconsin, 
and  knew  nothing  of  the  transaction,  he  was  liable  with  his  partner  for  the 
wrong  done.     Rosenkrans  vs.  Barker,  117  111.  331. 

2.  Luther  and  Frank  Hess,  partners  in  the  practice  of  medicine,  were 
sued  by  Isaac  Lowrey  for  malpractice,  he  proving  that  one  of  the  partners 
had  treated  his  broken  shoulder  in  a  negligent  and  unskilful  manner.  Both 
partners  were  liable  for  the  damage.     Hess  vs.  Lowrey,  122  Ind.  225. 

338. .  When  Partners  May  Not  Bind  Firm.  A  man  may  not 
bind  his  partner  or  partners  by  giving  a  firm  note  or  check  in 
payment  of  his  individual  debt,  for  the  nature  of  the  debt  is 
notice  to  all  parties  that  in  giving  the  firm's  paper  he  is  acting 
beyond  the  scope  of  his  authority.  He  cannot  dispose  of  the 
entire  assets  of  the  firm  unless  he  has  express  authority  to  do  so, 
or  the  other  partners  are  inaccessible  or  incapable  of  acting  and 
the  matter  is  urgent.  He  cannot  bind  the  firm  by  a  guaranty  of 
his  own  or  another's  debt,  nor  can  he  bind  the  firm  to  submit  a 
disputed  matter  to  arbitration. 

EXAMPLE 

Templeton  and  Sheets  made  a  contract  for  the  establishment  of  a  stock 
farm  and  purchased  a  herd  of  mares  for  that  purpose,  together  with  a  quantity 
of  hay  and  feed.  Without  the  knowledge  or  consent  of  Sheets,  Templeton 
sold  all  the  property  to  Lowman  and  a  contest  arose  between  him  and  Sheets 
as  to  the  ownership  in  the  property.  Sheets  retained  his  interest  in  the  prop- 
erty, as  the  sale  of  the  entire  assets  and  plant  was  obviously  outside  the  scope 
of  the  business,  for  it  destroyed  the  business.  Lowman  vs.  Sheets,  124 
Ind.  417. 

339.  Relations  to  Each  Other.  As  between  themselves,  the 
partners  have  certain  rights  and  liabilities.  If  it  be  remembered 
that  the  partnership  is  a  contract  similar  to  the  contract  of  agency 
these  rights  and  liabilities  will  be  readily  understood. 


284  PARTNERSHIP 

A  partner  must  act  in  good  faith  toward  his  co-partners  and 
cannot  make  a  secret  profit  in  firm  business.  He  must  not 
engage  in  undertakings  where  his  personal  interests  are  antago- 
nistic to  those  of  the  firm,  and  if  he  does  so  he  may  be  called  upon 
to  account  to  the  firm  for  the  profits  arising  therefrom. 

EXAMPLE 

Ames,  Bates,  and  Call  are  partners  engaged  in  the  real  estate  business. 
Knowing  that  the  partnership  is  about  to  purchase  a  certain  piece  of  land, 
Bates  secures  the  title  to  the  land  and  resells  it  to  the  partnership  at  a  profit. 
If  this  was  done  without  the  consent  of  the  other  partners  they  are  entitled  to 
require  Bates  to  account  to  the  firm  for  the  difference  between  the  price  he  paid 
for  the  land  and  the  amount  which  he  received  for  it  from  the  firm. 

It  is  also  the  duty  of  a  partner  to  transact  the  firm  business 
with  reasonable  care,  skill,  and  diligence;  and  he  is  responsible 
for  loss  resulting  from  any  negligence  on  his  part,  unless  it  results 
from  an  honest  and  reasonable  mistake  in  judgment. 

EXAMPLE 

Murphy  &  Crafts  were  partners,  under  an  agreement  not  to  indorse 
any  note  or  draft,  except  for  firm  purposes.  Crafts,  in  violation  of  this  pro- 
vision, and  to  accommodate  a  friend,  indorsed  a  draft  which  passed  into  the 
hands  of  a  holder  in  due  course,  and  the  friend  failing  to  pay  it  at  maturity,  the 
firm  was  compelled  to  pay  $5000.  Murphy  sued  Crafts  and  was  allowed 
recovery  for  the  amount  of  his  share  of  the  draft.  Murphy  vs.  Craft,  13  La. 
Ann.  519. 

Each  partner  is  entitled  to  share  in  the  profits  of  the  business 
in  the  proportion  of  his  interest  in  the  firm,  and  to  be  consulted 
and  allowed  to  participate  in  decisions  concerning  important 
undertakings  unless  he  has  consented  to  leave  the  active  manage- 
ment of  the  business  in  the  hands  of  a  managing  partner. 

EXAMPLE 

Yorks  and  Tozer  were  partners  in  a  single  real  estate  transaction,  a  piece 
of  property  being  purchased  and  the  title  taken  in  Tozer's  name.  Later  Tozer, 
without  consulting  Yorks,  a  lawyer  whose  knowledge  of  the  subject  would  have 
rendered  the  purchase  unnecessary,  purchased  for  a  large  amount  of  money 
an  apparent  but  really  unfounded  claim  against  the  real  estate.  This  act  was 
gross  negligence  and  he  could  not  require  Yorks  to  contribute  to  this  expense. 
Yorks  vs.  Tozer,  59  Minn.  78. 

Each  partner  has  the  further  right  of  contribution  and  indem- 
nity from  his  co-partners.     If,  in  consequence  of  his  membership 


PARTNERSHIP  285 

in  the  firm,  he  should  be  required  to  pay  debts  of  the  partnership 
beyond  the  extent  of  his  original  contribution  to  the  firm  assets, 
he  may  require  his  partners  to  bear  their  pro  rata  share  of  the 
excess. 

EXAMPLE 

Johnson,  Malone,  and  Hannan  are  partners  engaged  in  the  retail  grocery 
business,  each  having  contributed  S3000.  The  Central  Supply  Company 
collects  $4000  from  the  firm  on  a  note  for  $12,000  which  the  firm  owes  it,  and 
sues  and  recovers  the  $8000  balance  from  Malone,  who  may  compel  Johnson 
and  Hannan  each  to  reimburse  him  for  one-third  of  this  amount. 

If  a  partnership  be  formed  for  a  definite  period  and  one  of  the 
partners  without  consent  or  cause  withdraws  before  the  end  of  the 
term  the  others  may  recover  damages  as  for  the  wrongful  breach 
of  any  contract. 

340.  Rights  of  Creditors.  The  creditor  of  a  partnership  has 
a  right  to  be  paid  out  of  the  assets  of  the  firm,  of  if  these  be 
insufficient  then  out  of  the  individual  assets  of  the  partners.  An 
agreement  between  or  among  partners  to  release  one  of  their 
number  from  this  personal  liability,  however  binding  as  among 
themselves,  cannot  be  enforced  against  creditors. 

The  personal  creditors  of  a  member  of  a  partnership  may 
not  only  collect  their  debts  from  the  personal  assets  of  their 
debtor,  but  they  may  with  certain  limitations  secure  payment  out 
of  the  debtor's  share  in  the  partnership  assets.  Their  rights  are 
secondary  to  those  of  the  firm  creditors,  for  otherwise  a  partner's 
share  in  the  firm  assets  could  be  withdrawn  to  pay  his  private 
debts,  leaving  the  responsibility  for  payment  of  the  partnership 
debts  upon  the  remaining  partners.  It  is  therefore  geperally 
held  that  the  personal  creditor  of  a  partner  can  reach  his  debtor's 
share' in  partnership  assets  only  by  levying  upon  the  partner's 
undivided  interest  in  the  firm  assets,  and  demanding  an  account- 
ing of  the  partnership  in  the  course  of  which  it  is  made  clear  that 
the  interests  of  all  the  creditors  of  the  firm  are  protected.  The 
personal  creditors  may  then  be  paid  out  of  their  debtor's  share  in 
the  balance.  The  rights  of  personal  creditors  to  partnership 
assets  are  governed  largely  by  statutes  which  vary  in  the  several 
states,  and  which  should  always  be  consulted. 

The  creditor  of  a  partnership  always  has  the  option  of  enforc- 
ing payment  of  the  debt  either  against  the  partnership  or  against 


I 


286  PARTNERSHIP 

the  individuals  composing  the  partnership,  but  if  he  attempts  to 
collect  the  debt  out  of  the  private  assets  of  a  partner  his  right  is 
secondary  to  the  right  of  personal  creditors  of  that  partner. 
Just  as  a  partnership  creditor  has  the  right  to  demand  that  the 
firm  assets  be  applied  to  the  payment  of  his  debt  before  they 
may  be  used  to  satisfy  the  personal  debts  of  a  partner,  so  have  the 
personal  creditors  of  a  partner  the  right  to  insist  upon  being  paid 
first  out  of  the  private  assets  of  their  debtor. 

EXAMPLES 

1.  A  and  B  were  partners  in  a  trading  firm.  C  obtained  a  judgment 
against  A  individually  and  an  execution  was  issued.  The  sheriflf  could 
seize  the  entire  property  of  the  firm,  and  after  an  accounting  between  the  part- 
ners had  been  had  to  determine  their  respective  shares,  could  sell  enough  of 
A's  property  to  satisfy  the  debt.  Branch  vs.  Wiseman,  51  Ind.  1;  Clark  vs. 
Gushing,  52  Cal.  717. 

2.  A,  B,  and  C  were  sued  for  a  partnership  debt,  and  judgment  was 
obtained  against  them.  The  creditor  could  then  levy  either  upon  the  partner- 
ship property  or  upon  the  private  property  of  either  of  the  partners,  unless 
the  latter's  personal  creditors  intervened  and  insisted  that  the  firm  assets 
be  first  devoted  to  the  payment  of  the  debt.  Much  vs.  Allen,  17  N.  Y.  300; 
Fisher  vs.  Syfers,  109  Ind.  514. 

3.  A,  a  member  of  the  firm  of  A  &  B,  became  a  bankrupt.  C,  a  creditor 
of  the  firm,  sought  to  file  his  claim  as  a  creditor  of  A  and  to  secure  a  share  of 
A's  personal  assets.  This  he  was  unable  to  do,  as  the  private  creditors  of  A 
were  entitled  to  be  paid  first.  Brock  vs.  Bateman,  25  Ohio  St.  609;  Halsey 
vs.  Norton,  45  Miss.  703. 

REVIEW    QUESTIONS 

1.  Hodge,  Twitchell,  and  Rubey,  who  were  partners,  decided  to  purchase 
a  lot  on  which  to  erect  a  building,  for  $2500,  a  fair  price.  Unknown  to  his 
partners  Twitchell  went  to  the  owner  who  agreed  that  if  Twitchell  could  secure 
him  a  purchaser  for  $2400  he  would  pay  Twitchell  $90.  Twitchell  reported 
to  his  partners  the  fact  that  the  lot  could  be  purchased  for  $2400,  which 
purchase  was  made  and  the  seller  of  the  land  paid  Twitchell  $90.  On  learning 
the  entire  transaction  had  Hodge  and  Rubey  any  further  rights?     What? 

2.  A  did  business  under  the  firm  name  of  A  &  B,  with  B's  consent,  but 
the  property  used  and  held  out  as  firm  property  really  belonged  to  A.  A  and 
B  both  became  bankrupt.  There  were  private  creditors  of  both  A  and  B, 
and  creditors  of  the  apparent  firm  of  A  &  B.  What  were  the  rights  of  the 
three  classes  of  creditors  against  the  property  held  out  as  firm  property? 

3.  A  and  B  formed  a  partnership  for  three  years  to  conduct  an  illegal 
gambling  house.     At  the  end  of  the  time,  all  the  money  acquired  in  the  busi- 


PARTNERSHIP  287 

ness  was  in  the  hands  of  A,  who  refused  to  pay  over  any  of  it  to  B.     Could  B 
recover  his  share  from  A? 

4.  Insley  &  Shire  were  partners.  Insley  attended  to  the  details  of  the 
active  business,  while  Shire  looked  into  the  affairs  of  the  concern  once  a  month, 
examining  the  books.  Shire  recommended  the  employment  of  Milligan  as  a 
bookkeeper.  Milligan,  by  false  entries  in  the  books,  embezzled  $10,000,  in 
the  course  of  six  months.  During  that  period  Insley  had  neglected  his  own 
supervision  of  the  business  and  Shire,  relying  upon  Milligan's  honesty,  had 
taken  a  trip  to  Europe.  Milligan's  fraud  was  so  clever,  however,  that  had  both 
the  partners  devoted  their  attention  to  the  business  it  was  doubtful  whether 
they  would  have  discovered  the  fraud.  Each  partner  sued  the  other  for 
damages  for  carelessness  and  negligence.     Which  could  recover?     Why? 


CHAPTER  XXXIX 
DISSOLUTION   OF  PARTNERSHIP 

341.  When  Liability  Begins  and  Ends.  The  liability  of 
partners  begins  when  the  partnership  is  formed,  which  may  be 
either  when  an  express  agreement  of  partnership  is  made,  or 
when  third  persons  extend  credit  upon  the  strength  of  the 
apparent  relationship  which  parties  allow  to  be  inferred  from 
their  conduct. 

If  a  person  enters  a  partnership  which  is  already  in  existence, 
he  is  not  liable  for  debts  incurred  before  his  admission  to  the  firm, 
unless  he  expressly  or  impliedly  agrees  to  assume  such  liability. 
After  a  member  retires  from  a  firm  he  is  not  liable  for  future 
debts  incurred  after  his  withdrawal,  except  to  former  cisditors 
who  have  not  been  notified  of  the  change  in  the  firm. 

On  account  of  this  condition,  by  which  the  dissolution  of  a 
firm  may  relieve  partners  of  further  liability,  other  than  for  debts 
already  incurred,  it  is  of  the  greatest  importance  to  determine 
the  manner  in  which  the  dissolution  of  a  firm  may  be  effected. 

342.  Dissolution,  How  Effected.  A  partnership  may  be 
dissolved  in  any  of  the  following  ways : 

I.  By  agreement  III.  By  degree  of  court 

II.  By  act  of  one  party  IV.  By  operation  of  law 

343.  Dissolution  by  Agreement.  The  contract  of  partner- 
ship is  a  voluntary  one,  and  unless  a  definite  time  is  set  for  its 
expiration,  it  may  be  terminated  at  any  time  by  any  partner. 
If,  however,  a  time  be  set  in  the  contract  of  partnership,  it 
terminates  accordingly,  unless  all  the  partners  make  a  further 
agreement,  express  or  implied,  to  continue  it.  If  the  partnership 
is  formed  to  accomplish  a  particular  object,  it  is  terminated  when 
the  object  is  accomplished.  Notice  of  dissolution  should  be 
given  to  all  the  creditors. 

288 


DISSOLUTION   OF   PARTNERSHIP  289 

EXAMPLE 

Hollander  &  Kirkwood  became  partners  in  the  jewelry  business  for 
a  period  of  one  year  from  August  first,  and  carried  on  the  business  until 
October  of  the  year  following.  Kirkwood  became  dissatisfied,  closed  the  store, 
and  gave  public  and  private  notice  that  the  firm  had  been  dissolved.  Later 
Hollander  bought  goods  in  the  name  of  the  firm  and  the  creditors  sought  to 
hold  Kirkwood  liable.  Kirkwood  had  the  right  to  terminate  the  partnership 
and  notice  which  was  given  to  parties  dealing  with  the  partnership  was  suffi- 
cient.    Solomon  vs.  Kirkwood,  55  Mich.  256. 

344.  Dissolution  by  Act  of  One  Party.  The  other  partners 
may  demand  a  dissolution  if  one  partner  refuses  to  act  with  them, 
or  if  he  engages  in  other  business  against  their  wishes.  A  dis- 
solution is  also  effected  if  one  partner  sells  or  assigns  his  interest 
in  the  partnership.  The  other  partners  are  not  obliged  to  accept 
the  purchaser  or  assignee  as  a  new  partner,  because  they  may 
have  strong  objections  to  making  him  an  agent  of  the  partnership 
or  entrusting  its  affairs  in  his  hands,  which  would  be  the  result 
if  he  was  accepted  as  a  partner.  If  such  a  purchaser  or  assignee 
is  not  accepted  as  a  partner,  he  becomes  a  tenant  in  common 
with  the  others  in  the  property  of  the  partnership  and  is  entitled 
to  an  accounting  of  the  property,  and  a  payment  over  to  him  of 
his  interest. 

Should  a  partner  sell  or  assign  his  interest  in,  or  otherwise 
terminate,  a  partnership  created  for  a  fixed  period,  before  the 
agreed  time  of  termination  and  without  cause,  he  is  guilty  of 
breach  of  contract,  and  may  be  called  upon  to  pay  damages  to 
the  remaining  partners  for  any  injury  caused  them. 

EXAMPLE 

Harvey  and  Howell  were  partners  in  a  retail  store.  Howell  went  to 
a  wholesale  house  in  Philadelphia  and  bought  a  line  of  goods  at  a  very  low  price. 
On  his  return  to  his  home,  he  discovered  that  prices  in  that  line  of  merchandise 
were  rapidly  advancing,  and  gave  notice  to  Harvey  of  the  dissolution  of  the 
partnership,  retaining  possession  of  the  goods  and  taking  in  his  son  as  a  part- 
ner. The  prices  continued  to  advance  and  he  made  a  large  amount  of  money. 
In  an  accounting  between  Harvey  and  Howell,  Howell  offered  to  pay  Harvey 
the  value  of  one-half  the  merchandise  at  the  time  of  the  notice  of  dissolution. 
Harvey,  however,  was  entitled  to  damages  for  the  termination  of  the  partner- 
ship to  the  amount  of  one-half  of  the  profits  occasioned  by  the  advance  in 
price  of  goods,  the  dissolution  not  having  been  in  good  faith.  Howell  vs. 
Harvey,  5  Ark.  270. 


290  DISSOLUTION   OF   PARTNERSHIP 

345.  Dissolution  by  Degree  of  Court.  A  court  of  equity 
will,  for  just  and  reasonable  causes,  decree  a  dissolution  of  a 
partnership,  upon  the  petition  of  a  member.  When  such  a 
dissolution  is  decreed,  a  receiver  is  usually  appointed,  who  takes 
charge  of  the  firm's  business,  collects  all  debts  due  to  it,  pays  its 
obligations,  converts  the  assets  of  various  kinds  into  money,  and 
divides  the  balance  according  to  the  interest  of  each  partner. 

EXAMPLE 

Gerard  and  Gateau  were  partners  in  the  manufacture  of  zinc  roofing. 
Gerard  brought  suit  asking  for  a  dissolution  of  the  partnership  on  the  grounds 
that  Gateau  was  quick-temf>ered,  was  insolent  and  over-bearing  to  custqmers, 
had  made  overcharges  for  work  which  injured  the  reputation  of  the  firm,  and 
had  employed  as  a  salesman  his  nephew,  whose  work  had  caused  the  firm 
losses  and  finally  necessitated  his  discharge.  These  grounds  were  held 
insufficient  to  prevent  co-operation  between  reasonable  men,  and  as  the  busi- 
ness was  profitable  and  the  period  of  ten  years  for  which  it  had  been  formed 
had  not  elapsed,  the  court  refused  to  decree  a  dissolution.  Gerard  vs.  Gateau, 
84  111.  121. 

The  grounds  for  granting  a  decree  of  dissolution  are,  in 
general,  that  it  has  become  impracticable  to  continue  the  busi- 
ness. One  of  the  partners  may  be  unable  to  carry  out  his  part 
fully,  or  the  undertaking  may  be  visionary;  one  of  the  partners 
may  be  so  intemperate  or  immoral  or  unreliable  as  to  imperil 
the  success  of  the  business,  or  he  may  have  wrongfully  excluded 
the  others  from  their  share  in  the  management  of  the  business, 
or  may  deny  them  access  to  books  of  account ;  and  these  wrong- 
ful acts  will  justify  a  court  in  ordering  a  dissolution  of  the  firm 
and  a  distribution  of  its  assets. 

EXAMPLE 

The  firm  of  Groth  and  Payment  was  unable  to  succeed  financially  because 
one  of  the  partners  devoted  a  large  part  of  his  time  to  gambling  and  drinking, 
frequently  staying  away  from  the  business  for  several  days  at  a  time,  and 
frequently  drawing  large  sums  from  the  firm's  account,  to  the  detriment  of 
the  business.  The  other  partner  could  secure  a  dissolution  of  the  firm,  even 
though  the  period  for  which  it  had  been  created  had  not  elapsed,  by  a  proceed- 
ing in  a  court  of  equity.     Groth  vs.  Payment,  79  Mich.  290. 

346.  Dissolution  by  Operation  of  Law.  Any  change  in  the 
legal  status  of  a  partner,  so  that  he  is  incapable  of  acting  for 


DISSOLUTION   OF   PARTNERSHIP  291 

himself,  will  dissolve  a  partnership  by  operation  of  law,  for  the 
law  contemplates,  not  only  that  partners  shall  be  able  to  create 
contracts  at  the  formation  of  the  partnership,  but  that  they 
shall  continue  so  during  its  existence. 

A  partnership  may  be  ended  if  a  partner  becomes  insane  or 
a  spendthrift  and  is  placed  under  guardianship.  At  common  law 
the  marriage  of  a  female  partner  dissolved  a  partnership,  but  this 
is  not  true  in  states  where  married  women  may  contract  as  though 
unmarried. 

The  death  of  a  partner  works  a  dissolution.  This  dissolution 
takes  effect,  like  the  dissolution  of  an  agency  in  case  of  the 
death  of  the  agent,  immediately,  regardless  of  whether  or  not 
third  persons  have  notice  of  it.  The  representative  or  heirs  of 
the  estate  can  take  no  pari  in  the  management  of  the  partnership 
business,  without  the  consent  of  the  surviving  partners. 

EXAMPLE 

Bates,  of  the  firm  of  Ames,  Bates  and  Call,  dies,  and  no  notice  of  this  fact, 
or  of  the  dissolution  of  the  firm,  is  given  to  creditors.  Dale,  who  has  dealt 
with  the  firm  before,  sells  a  shipment  of  goods  to  Ames  for  the  firm,  without 
knowledge  of  Bates'  death.  Being  unpaid,  he  sues  the  estates  of  Bates  and 
Call  personally.  He  cannot  recover  against  either  as  Ames  alone  is  bound  to 
pay,  unless  Call  consented  to  a  continuation  of  the  firm  as  between  himself 
and  Ames.     Schmidt  vs.  Archer,  113  Ind.  365. 

347.  What  Powers  Cease  by  Dissolution.  When  a  dissolu- 
tion occurs,  there  is  a  change  in  the  relations  of  the  partners  and 
in  their  rights  and  powers.  They  can  no  longer  use  the  partner- 
ship property  for  the  purposes  of  trade,  but  can  make  onlj^  such 
contracts  as  look  to  a  settlement  of  the  partnership  affairs. 
Neither  partner  can  make  or  indorse  negotiable  paper  in  the  firm 
name.  Neither  can  create  new  obligations,  or  vary  those  already 
made  except  for  purposes  of  collection. 

EXAMPLE 

After  the  dissolution  of  the  firm  of  Fisk  and  Small,  Fisk,  one  of  the  part- 
ners, signed  a  note  in  behalf  of  the  firm  for  $500  payable  to  Jones,  a  firm  cred- 
itor, who  knew  of  the  dissolution.  The  debt  for  which  the  note  was  given  was 
about  to  outlaw  and  the  giving  of  the  note  did  not  serve  to  bind  Small  nor 
extend  Jones'  rights  against  the  firm  assets  after  the  time  when  the  original 
debt  would  have  outlawed.     Gates  vs.  Fiske,  45  Mich.  522. 


292  DISSOLUTION   OF   PARTNERSHIP 

348.  What  Powers  Remain  After  Dissolution.  On  the  dis- 
solution of  a  firm  each  partner  has  the  right  to  collect  and  receipt 
in  the  firm  name  for  all  debts  due  the  firm.  Each  also  has  the 
right  to  adjust  and  pay  all  unliquidated  debts  of  the  firm  with  the 
firm's  money.  Each  may  also  sell  the  firm's  property  for  cash, 
and  each  may  insist  that  all  firm  debts  be  paid  before  any  division 
of  assets  is  made  between  the  partners.  The  partners  must  con- 
tinue to  be  diligent  and  to  exercise  good  faith  in  closing  up  the 
affairs  of  the  firm,  and  if  either  unreasonably  prolongs  the  busi- 
ness, the  court  may  be  asked  to  intervene  and  appoint  a  receiver. 
Money  may  be  borrowed,  or  property  mortgaged  or  pledged,  only 
in  so  far  as  it  is  necessary  to  preserve  the  assets  of  the  firm  for 
the  purpose  of  closing  up  the  business. 

349.  New  Powers  Created  by  Dissolution.  When  a  partner- 
ship is  dissolved,  the  peculiar  relation  of  the  partners,  as  such, 
ceases,  and  they  become  tenants  in  common  in  the  property  of 
the  partnership,  with  undivided  shares. 

When  the  dissolution  is  caused  by  the  death  of  one  partner, 
his  personal  representative  becomes  a  tenant  in  common  with  the 
surviving  partner  or  partners.  As  such  a  tenant  in  common  he 
has  the  right  to  have  an  accounting  and  division  of  the  assets  of 
the  business,  but  has  no  right  to  a  part  in  the  winding  up  of  the 
business  as  a  partner.  This  is  a  right  belonging  solely  to  the  sur- 
viving partners.  They  have  the  entire  legal  title  to  all  the  part- 
nership assets,  and  they  only  can  sue  and  be  sued  in  respect  to 
partnership  matters.  The  survivor  is  virtually  a  trustee  for  the 
firm,  but  as  such  is  not  entitled  to  any  special  compensation  for 
his  services.  The  representatives  of  a  deceased  partner  are 
entitled  to  their  share  in  profits  that  result  from  winding  up  the 
business,  and  if  the  business  is  carried  on  with  no  effort  to  wind 
it  up,  they  are  entitled  to  profits,  but  are  not  liable  for  losses. 

EXAMPLE 

Hawkins  was  the  surviving  partner  of  the  firm  of  Capron  and  Company. 
Capron's  heirs  took  possession  of  some  of  the  property  of  the  firm,  and  refused 
to  deliver  possession  of  it  to  Hawkins,  who  sued  them  and  was  permitted  to 
recover  possession  of  all  the  firm  property  and  to  hold  it  for  the  purpose  of 
winding  up  the  business.     Hawkins  vs.  Capron,  17  R.  I.  679. 


DISSOLUTION  OF   PARTNERSHIP  293 

350.  Notice  of  Dissolution.  When  a  partnership  is  dis- 
solved, notice  of  the  fact  should  be  sent  to  all  with  whom  the  firm 
has  had  credit  in  the  past.  This  is  for  the  protection  of  the  retir- 
ing partner,  not  that  he  may  avoid  liabilities  already  incurred, 
but  that  he  may  avoid  future  obligations  assumed  by  the  remain- 
ing partners.  Until  notice  is  given  to  creditors  of  the  firm,  the 
retiring  partner  continues  to  be  liable  for  future  debts  contracted 
with  them,  for  the  dissolution  of  a  firm  as  to  third  persons  takes 
place  only  when  they  have  notice  of  it.  When  the  dissolution 
occurs  by  operation  of  law,  actual  notice  is  not  necessary,  and 
third  parties  are  presumed  to  have  notice.  The  usual  method 
of  giving  notice  of  dissolution  is  to  send  a  circular  letter  to  all 
who  have  previously  extended  credit  to  the  firm,  and  to  publish 
notice  of  the  dissolution  in  a  newspaper  for  the  benefit  of  those 
who  knew  of  the  firm's  existence  and  who  have  not  dealt  with  it 
in  the  past,  but  who  might  do  so  in  the  future. 

351.  Limited  Partnerships.  The  particular  characteristic 
of  all  partnerships  at  common  law  was  that  each  partner  risked 
his  entire  fortune  in  the  business,  for  he  might  be  called  upon  to 
pay  the  entire  debts  of  the  firm.  By  statutes  in  the  various 
states  a  new  form  of  partnership  called  a  limited  partnership  is 
now  permitted  in  many  states*.  By  conforming  to  the  statutes 
it  is  possible  for  one  or  more  of  the  partners  to  limit  the  extent 
of  his  liability  to  the  amount  of  the  firm  capital  which  he  actually- 
contributed.  Such  partners  with  limited  liability  are  called 
special  partners,  distinguishing  them  from  the  general  partners. 
While  the  statutes  of  the  various  states  differ,  the  following 
provisions  are  quite  general : 

1.  There  must  be  one  or  more  general  partners,  and  one  or 
more  special  partners. 

2.  A  certificate  of  partnership  containing  the  name  of  the 
firm,  its  nature  and  object,  the  names  of  all  the  partners  with 
their  residences,  a  designation  of  who  are  general  and  who  are 


*  Alabama,  California,  Connecticut,  Florida,  Georgia,  Illinois,  Indiana, 
Kansas,  Kentucky,  Louisiana,  Maryland,  Massachusetts,  Michigan,  Minne- 
sota, Montana,  Missouri,  Mississippi,  New  Jersey,  New  York,  Pennsylvania, 
Rhode  Island,  South  Carolina,  South  Dakota,  North  Dakota,  Vermont, 
Virginia,  Wisconsin. 


294  DISSOLUTION  OF  PARTNERSHIP 

special  partners,  together  with  the  amount  of  the  investment  of 
the  special  partners,  must  be  signed  by  all  the  partners,  recorded 
in  the  county  records  and  published  for  a  specified  time  in  a  news- 
paper of  general  circulation  in  the  community. 

3.  The  names  of  the  special  partners  must  not  appear  in  the 
firm  name,  and  the  word  Limited  or  the  abbreviation  Ltd.  must 
follow  and  be  part  of  the  firm  name. 

4.  The  investment  of  the  special  partners  must  be  paid  in 
in  cash. 

Unless  the  provisions  of  the  statutes  of  the  particular  state  in 
which  it  is  attempted  to  form  such  a  partnership  are  strictly 
observed,  the  firm  will  be  treated  by  the  law  as  a  general  partner- 
ship and  the  individual  liability  of  all  the  partners  will  be  that 
of  general  partners. 

REVIEW   QUESTIONS 

1.  Youmans  and  Adams,  partners,  dissolved  partnership.  No  notice  of 
dissolution  was  given  and  thereafter  Youmans  in  the  firm  name  agreed  to  buy 
quantities  of  wheat  of  both  Jones  and  Brown,  both  of  whom  were  former 
creditors  of  the  firm.  Jones  actually  knew  of  the  dissolution,  but  Brown 
did  not.  Upon  Youmans'  failure  to  carry  out  the  contracts  could  Jones  and 
Brown  claim  any  liability  on  the  part  of  Adams?     Could  either? 

2.  Ames  and  Bates  were  partners.  Call  bought  an  interest  in  the 
business,  after  which  time  Bates  gave  a  firm  note  to  Dale  in  payment  of  a  debt 
contracted  before  Call  became  a  partner.  Call  had  no  knowledge  of  this  note 
until  he  was  sued  on  it  by  Dale.     Could  Dale  recover?     Why? 

3.  Chastain  and  Harvey,  a  firm,  dissolved  partnership.  Harvey, 
without  any  authority  from  Chastain,  issued  a  note  in  the  firm  name  to  pay  a 
debt  which  the  firm  had  owed  prior  to  its  dissolution.  Chastain  was  later 
sued  on  this  note.     Couldrecovery  be  had  against  him?     Why? 

4.  A,  B,  and  C  are  partners.  A  and  B  discover  that  C,  who  has  been 
managing  the  business  affairs  of  the  firm,  has  kept  the  books  fraudulently  and 
misappropriated  large  sums  of  money  to  his  own  use.  What  remedies  have 
they? 

5.  X,  Y,  and  Z  having  dissolved  the  partnership  which  had  existed 
between  them,  X  undertook  to  settle  up  the  firm  business,  and  in  the  course  of 
the  settlement  entered  into  an  adjustment  of  account  with  A  by  which  it  was 
agreed  that  the  firm  was  indebted  to  A  to  the  amount  of  $1000;  he  also  made 
a  part  payment  on  a  debt  of  the  firm  to  B  which  at  the  time  of  payment  was 
barred  by  the  statute  of  limitations.  To  what  extent,  if  any,  are  Y  and  Z 
bound  by  these  actions  of  X? 


DISSOLUTION   OF   PARTNERSHIP  295 

PRACTICAL   SUGGESTIONS 

Remember  that  as  a  partner: 
I.     You  are  liable  to  the  full  extent  of  your  own  property  for  firm  debts. 
If  a  judgment  against  the  partnership  cannot  be  satisfied  out  of  firm  assets, 
each  partner  will  be  individually  liable  for  the  full  amount  of  the  deficit. 

II.  Your  partner  has  as  much  authority  in  the  conduct  of  the  firm 
business  as  yourself.     Your  credit  is  at  the  mercy  of  your  partner. 

III.  Your  partner's  death,  insanity,  or  bankruptcy  immediately  dis- 
solves the  partnership. 

IV.  You  may  desire  to  wind  up  your  interest  in  the  concern,  but  if  your 
partner  refuses  to  permit  you  to  withdraw,  you  will  have  to  resort  to  long  and 
expensive  litigation. 


CHAPTER  XL 


1.   Creation 


CORPORATIONS 

'1 .  Procedure  to  incorporate 

2.  Charter  from  fa.  By  special  act 
state     \b.  By  general  act 


il.  Stockholders^ 


Common 
Preferred 


II.  Management{2.  Directors 

3.  Officers  and  agents 


1.  Manner 


III.  Disso- 
lution' 


2.    Effect' 


a.  Expiration  of  charter 

b.  Surrender  of  charter 
0.  Forfeiture  of  Charter 
d.  Repeal  of  charter 

a.  As  to  stockholders 

b.  As  to  creditors 


352.  Introduction.  The  corporation  is  the  most  recent 
form  of  business  organization.  When  the  Federal  Constitution 
was  adopted,  there  were  six  corporations  engaged  in  business  in 
this  country.  Two  of  them  were  banking  houses,  two  insurance 
companies,  one  a  bridge  company,  and  one  was  engaged  in  the 
manufacture  of  iron.  There  are  now  over  five  hundred  thousand 
corporations  in  the  United  States,  representing  immense  aggre- 
gations of  capital  and  engaging  in  every  conceivable  form  of 
business,  of  both  a  public  and  a  private  nature.  The  corporation 
is  a  favorite  form  of  business  organization  for  three  reasons: 
First,  because  investors  are  not  individually  liable  for  all  the 
debts  of  the  corporation,  as  in  the  case  of  a  partnership;  second, 
because  it  offers  a  simple  form  of  investment  for  the  person  who 
has  some  money  but  not  enough  to  engage  in  a  business  for 


296 


I 


CORPORATIONS  297 

himself,  or  who  wishes  to  invest  only  a  part  of  his  fortune  in 
a  particular  enterprise;  third,  because  it  offers  a  convenient 
means  of  engaging  a  large  amount  of  money  in  a  single  enterprise, 
through  the  contributions  of  many  investors. 

353.  Definition.  A  corporation  is  an  organization  the 
members  of  which,  called  stockholders,  are  authorized  by  law  to 
act  in  certain  respects  as  a  single  person,  under  a  corporate  name. 
Chief  Justice  Marshall  defined  it  as  "an  artificial  being,  invisible, 
intangible,  and  existing  only  in  contemplation  of  law,"  and  this 
definition  has  persisted  in  judicial  decisions.  The  corporation  is 
composed  of  members,  usually  stockholders,  but  it  is  something 
entirely  dififerent  from  the  members  who  compose  it. 

354,  Consists  of  Two  Contracts.  The  existence  of  a  cor- 
poration is  founded,  not  upon  contract  between  the  membeis 
composing  it,  as  in  a  partnership,  but  upon  a  charter,  or  franchise, 
from  the  state,  providing  that  the  corporation  may  exist  and  act 
as  an  artificial  person.  This  charter  is  really  a  contract  between 
the  state  and  the  corporation.  By  this  contract  the  state  agrees 
that  the  corporation  may  exist,  transact  business,  and  exercise 
the  powers  for  which  it  is  organized. 

There  is  also  a  contract  between  the  stockholders.  Since 
members'  votes  carry  weight  in  proportion  to  the  stock  they  own, 
the  management  and  control  of  a  corporation  is  in  the  hands  of 
the  members  holding  a  majority  of  the  stock.  They  elect 
officers  and  direct  the  business  of  the  enterprise.  But  the  major- 
ity of  a  corporation  is  always  obligated  by  an  implied  contract 
that  they  will  manage  the  corporation  according  to  the  pro- 
visions of  the  charter,  and  will  not  engage  in  prohibited  or 
unauthorized  undertakings,  or  employ  the  corporate  funds 
for  purposes  other  than  that  for  which  the  corporation  was 
organized.  This  restriction  is  for  the  benefit  of  the  minority 
members  of  the  corporation,  and  is  in  reality  a  contract  between 
the  members  composing  the  corporation  that  the  majority  will 
always  act  within  the  charter  powers. 

EXAMPLE 

The  Acme  Company,  a  corporation,  is  organized  and  receives  a  charter 
from  the  state  empowering  it  to  engage  in  the  business  of  manufacturing  iron 
rails.     It  is  composed  of  a  large  number  of  members,  and  the  majority  of  these 


298  CORPbRATIONS 

members  vote  to  engage  in  the  business  of  operating  a  railroad.  The  minority 
members  may  object  to  this  and  may  prevent  the  majority  members  from 
engaging  the  capital  of  the  corporation  in  such  a  business  which  is  outside  the 
scope  of  the  powers  of  the  corporation  as  represented  by  its  charter.  Or  an 
objection  might  be  raised  by  the  State.  Each  member  is  entitled  to  demand 
that  his  contribution  to  the  corporation  shall  be  used  for  the  purposes  for  which 
the  corporation  was  organized  and  no  other. 

355.  Nature  of  a  Corporation.  While  the  corporation  is 
based  upon  these  two  contracts,  it  is  not  a  contract  itself,  but  a 
person.  It  is  not  a  natural  person  like  the  members  who  compose 
it,  but  an  artificial  person  with  the  power  of  acting  in  certain 
matters  like  a  natural  person.  It  possesses  rights  and  duties 
very  similar  to  those  of  a  natural  person.  Among  these  are: 
(1)  The  right  of  property  and  reputation  protected  at  common 
law,  and  under  constitutional  provisions,  similar  to  the  same  right 
of  natural  persons;  and  (2)  duties,  arising  both  from  the  pro- 
visions of  the  charter  by  which  it  was  created  and  as  fixed  by  law. 
Among  the  secondary  rights  which  a  corporation  possesses  are: 
(1)  The  right  to  continue  in  existence  after  the  death,  withdrawal, 
or  substitution  of  its  members;  (2)  the  right  to  take  and  hold 
property  in  its  corporate  name,  such  property  belonging  to  the 
corporation,  and  not  to  the  members  who  compose  it;  (3)  the 
right  to  sue  and  be  sued  like  a  natural  person;  (4)  the  right  to 
incur  debts  and  make  contracts  in  the  corporate  name,  which 
create  obligations  binding  upon  the  corporation  alone  and  for 
the  collection  of  which  the  corporate  assets  alone  are  liable; 
(5)  the  right  to  contract  with  its  own  members  and  to  sue  and  be 
sued  by  them. 

EXAMPLES 

1.  A  candidate  for  public  office  in  public  speeches  falsely  accused  a  coal- 
company,  during  the  coal  famine  of  1902-3.  of  charging  exorbitant  prices  for 
coal  and  refusing  to  sell  at  all  to  persons  who  were  sick  and  suffering.  Such 
charges  amounted  to  slander,  injured  the  company's  business  reputation,  and 
entitled  it  to  sue  for  damages  which  it  had  suffered.  Gross  Coal  Co.  vs.  Rose, 
126  Wis.  24. 

2.  A  canal  company  was  bound  by  its  special  charter  from  the  state 
to  construct  a  canal  deep  enough  to  accommodate  certain  vessels.  It  failed 
to  keep  the  canal  in  a  suitable  condition,  and  a  vessel  was  damaged  through 
this  negligence.  The  owner  of  the  vessel  was  entitled  to  recover  his  damages 
against  the  corporation,  it  having  been  under  a  duty  for  the  benefit  of  all 
persons  who  used  the  canal.     Riddle  vs.  Proprietors,  7  Mass.  169. 


CORPORATIONS  299 

356.  Kinds  of  Corporations.  The  two  important  kinds  of 
corporations  in  present  day  commerce  are  (1)  Public,  and  (2)  Pri- 
vate Corporations.  Public  corporations  are  primarily  govern- 
mental institutions  created  by  law  for  the  administration  of 
public  affairs  in  particular  communities.  Such  organizations 
are  frequently  called  municipal  corporations,  and  include  cities, 
towns,  villages,  counties,  school  districts,  drainage  districts,  and 
irrigation  districts  created  by  the  state. 

Private  corporations  are  such  as  are  created  by  private  enter- 
prise to  accomplish  some  private  end.  They  are  usually  organ- 
ized for  private  profit,  the  members  sharing  in  the  profits  to  the 
extent  of  their  shares  in  the  corporation.  They  include  religious, 
charitable,  railroad,  banking,  insurance,  manufacturing,  and 
trading  corporations.  Even  though  they  be  formed  for  the  pur- 
pose of  serving  the  public  generally,  as  is  true  in  the  case  of  rail- 
roads, water-works,  and  gas  and  electric  companies,  if  they 
exist  primarily  for  private  gain  they  are  private  corporations. 
They  can  only  exist  by  the  consent  of  the  members  incorporating 
the  company. 

357.  Compared  with  Partnerships.  The  features  of  this 
form  of  commercial  organization  are  strikingly  explained  when  it 
is  compared  with  the  partnership.  The  following  are  the  chief 
differences  between  the  corporation  and  the  partnership.  (1)  In 
creation:  Corporations  can  be  created  only  by  express  authority 
of  the  state;  partnerships,  by  mere  contract  of  the  parties. 
(2)  In  franchise:  A  corporation  has  at  least  one  franchise,  the 
franchise  from  the  state  to  be  a  corporation;  a  partnership, 
none.  (3)  In  management:  A  corporation  is  managed  only 
through  its  duly  appointed  ofhcers  and  agents;  in  partnerships, 
each  partner,  or  member,  can  act  for  the  partnership.  (4)  In 
powers:  The  corporation  can  lawfully  exercise  no  powers  except 
those  expressly  conferred  by  the  state  or  necessarily  implied  from 
those  granted  to  it  by  the  state,  and  these  cannot  be  enlarged 
without  the  consent  of  the  state;  while  the  members  of  a  partner- 
ship may  do  any  lawful  thing  which  they  agree  to  do.  (5)  In 
duration:  The  corporation  is  perpetual  unless  expressly  limited — 
the  death,  resignation,  or  insolvency  of  members  does  not  dis- 
solve it;  but  any  one  of  these  dissolves  a  partnership.    (6)  In 


300  CORPORATIONS 

ownership  of  property:  The  title  to  the  corporate  property  is 
in  the  corporation  and  not  in  the  individual  stockholders;  that 
of  the  partnership  in  the  members  of  the  partnership,  they  being 
considered  joint  owners.  (7)  In  litigation:  A  corporation  sues 
or  is  sued  in  its  corporate  name;  the  partnership,  in  the  names  of 
its  members.  (8)  In  transfer  of  interest:  The  transfer  of  his 
interest  by  a  member  has  no  effect  on  corporate  existence;  but  a 
transfer  of  interest  dissolves  a  partnership.  (9)  In  liability  of 
members:  In  absence  of  a  special  statute,  a  member  of  a  corpo- 
ration is  not  liable  beyond  the  amount  subscribed  for  his  shares; 
but  in  a  partnership,  there  is  an  individual  liability  of  each  part- 
ner to  the  entire  extent  of  its  debts.  Ana,  (10)  in  dissolution: 
A  corporation  can  be  rightly  dissolved  only  by  or  with  the  consent 
of  the  state;  partners  may  dissolve  a  partnership  at  any  time. 

EXAMPLES 

1.  Button  acquired  all  the  stock  in  a  corporation  and  then  sued  Hoffman 
in  his  own  name  to  recover  possession  of  some  personal  property  which  had 
belonged  to  the  corporation.  This  he  could  not  do,  but  should  have  brought 
suit  in  the  name  of  the  corporation,  as  Button  and  the  corporation  were 
separate  and  distinct  persons.     Button  vs.  Hoffman,  61  Wis.  20. 

2.  Burral  sued  the  Bushwick  Railroad  Company,  a  corporation,  to 
recover  certain  dividends  on  stock  owned  by  him,  which  the  corporation 
wrongfully  withheld.  Objection  to  this  suit  was  made  on  the  ground  that 
Burral  was  a  member  of  the  corporation  and  therefore  could  not  sue  it,  which 
would  have  been  a  valid  objection  had  the  organization  been  a  partnership. 
Here,  however,  Burral  and  the  corporation  were  separate  and  distinct  persons 
and  the  suit  could  be  brought  by  Burral  against  the  corporation.  Burral  vs. 
Bushwick  Railroad  Company,  75  N.  Y.  211. 

368.  Formation.  A  corporation  is  created  through  the  joint 
act  of  the  state  and  the  individuals  who  compose  it,  called  the 
incorporators.  These  incorporators  apply  to  the  state  for 
permission  to  organize  a  corporation,  and  upon  receiving  the 
permission  of  the  state  provide  for  its  organization.  The  per- 
mission of  the  state  may  be  granted  either  (I)  by  special  act; 
or  (2)  by  general  act. 

By  special  act.  Until  about  1840,  this  was  the  usual  method 
of  securing  the  permission  of  the  state  in  the  United  States,  the 
incorporators  applying  to  the  legislature  of  a  state,  or  to  Congress, 
for  permission  to  form  a  particular  corporation  for  a  particular 


CORPORATIONS  301 

purpose,  the  legislature  or  Congress  then  enacting  a  law  provid- 
ing that  they  might  organize  a  corporation  for  that  particular 
purpose  and  providing  the  powers,  liabilities,  and  conditions 
under  which  it  might  exist.  This  special  act  was  the  charter, 
or  franchise  from  the  state,  by  virtue  of  which  the  corporation 
existed. 

EXAMPLE 

Aaron  Burr  secured  a  charter  for  a  company  to  supply  the  city  of  New 
York  with  water,  the  legislature  granting  the  charter  by  special  act  which 
further  provided  that  the  corporation  should  have  the  authority  to  use  its 
surplus  capital  "in  any  way  not  inconsistent  with  the  laws  and  constitutions 
of  the  United  States  and  New  York."  The  Manhattan  Bank  of  New  York 
City  carried  on  its  business  for  many  years  under  this  charter. 

By  general  act.  This  is  the  usual  manner  in  which  present 
day  corporations  are  created.  The  legislatures  of  the  various 
states  have  passed  general  laws  providing  certain  definite  meth- 
ods by  which  corporations  may  be  organized  and  specifying  the 
purposes  for  which  they  may  be  created  and  the  powers  which 
they  may  enjoy  upon  their  creation.  The  function  of  the  incor- 
porators is  to  comply  with  the  conditions  and  requirements  of 
the  general  act,  and  make  application  to  the  officer  designated 
therein  for  the  issuance  of  a  charter. 

In  forming  corporations  under  general  laws,  strict  adherence 
must  be  observed  to  all  the  preliminary  requirements.  The 
usual  conditions  are  that  the  incorporators  shall  call  a  meeting, 
agree  upon  the  general  purposes  of  the  corporation,  provide  a 
stock  subscription,  and  adopt  articles  of  association  (or  incor- 
poration) which  are  filed  usually  with  a  county  officer  and  also 
with  the  secretary  of  state,  who  upon  payment  of  the  statutory 
fee  issues  a  certificate  of  incorportion.  Failure  to  observe  the 
conditions  of  the  general  law  providing  for  incorporation  of 
companies  may  result  in  the  members  becoming  liable  as  partners. 

359.  Property  Peculiar  to  Corporations.  Upon  the  creation 
of  a  corporation  it  possesses  certain  forms  of  property  peculiar 
to  this  form  of  business  organization.  These  are:  (1)  The  cor- 
porate charter;  (2)  the  corporate  name,  and  (3)  the  capital  of 
the  corporation. 


CORPORATIONS 

Corporation  Charter 


tjfl«!illpiteiMi|jilliiE^ 

Wh^rOfiSjrr  STATEMENT.  y////^M^/t/*/am/a^nfiff/^^,^  /^/(/ 
Mn^tyf,i///»vtrfrf///^//r//Ym/Ar/f/^U/r»Jr^%AlJUHCER 


J^f/Af/r^m  ^James  A.Rose.  [/n'Uffy^Mf/'ry///r./M^Y^^^ 


y^^yO^ 


CORPORATIONS  303 

The  corporate  charter,  as  previously  defined,  is  the  privilege 
granted  by  the  state  to  be  a  corporation.  This  is  a  contract  and 
is  a  form  of  property  belonging  to  the  corporation. 

The  corporate  name  is  the  name  adopted  by  the  incorporators 
of  the  corporation  to  designate  this  artificial  person.  It  is 
required  in  most  states  that  the  corporate  name  shall  include  the 
word  "company."  The  corporate  name  is  property  belonging 
to  the  corporation,  and  no  other  corporation  in  the  state  can  use 
or  appropriate  the  same  name. 

The  capital  of  the  corporation  is  the  whole  amount  of  its 
property  of  whatever  kind.  This  includes  the  ofiice  furniture, 
real  estate,  buildings,  merchandise,  moneys,  and  the  charter  and 
goodwill  of  the  enterprise.  It  may  be  increased  through  success 
and  good  management,  or  it  may  be  decreased  through  losses 
incurred  in  the  business.  It  represents  the  property  of  the  cor- 
poration. In  so  far  as  it  represents  profits,  it  may  be  distributed 
among  the  stockholders  in  the  form  of  dividends.  Upon  the  dis- 
solution of  the  corporation  it  belongs  to  the  stockholders  in 
proportion  to  their  holdings  of  stock.  It  is  subject  to  the 
demands  of  creditors  of  the  corporation  and  may  be  seized  upon 
execution  against  the  corporation  for  its  debts.  Until  it  is  dis- 
tributed in  the  form  of  dividends  or  until  the  corporation  is 
dissolved,  it  is  the  property  of  the  corporation  and  not  of  the 
stockholders,  and  cannot  be  seized  by  personal  creditors  of  stock- 
holders of  the  corporation. 

It  does  not  include  the  company's  capital  stock,  the  shares  of 
which  are  the  property  of  the  individual  stockholders.  An  excep- 
tion exists  in  the  case  of  treasury  stock,  in  states  which  permit 
corporations  to  hold  treasury  stock. 

EXAMPLES 

1.  The  trustee  in  bankruptcy  of  the  People's  Bank  of  Belleville  petitioned 
the  court  for  permission  to  sell  the  charter  of  the  corporation  as  one  of  the 
assets.  This  right  was  denied,  for  while  the  charter  is  the  property  of  the 
corporation  it  is  not  a  form  of  property  which  may  be  sold.  Fietsam  vs.  Hay, 
122  111.  293. 

2.  The  Chas.  S.  Higgins  Company,  a  corporation,  enjoyed  a  large 
business  in  manufacturing  and  selling  soap.  A  rival  corporation  was  formed 
which  proposed  to  use  the  name  of  Higgins  Soap  Company.  The  use  of  this 
name  by  the  second  corporation  could  be  prevented  by  an  injunction,  as  it 


304  CORPORATIONS 

was  so  similar  to  the  name  of  the  first  corporation  as  to  lead  to  confusion. 
The  name  of  a  corporation  is  property  which  it  may  protect.  Chas.  S.  Higgins 
Company  vs.  Higgins  Soap  Company,  144  N.  Y.  462. 

3.  The  Bell  Manufacturing  Company  owns  a  plant  and  a  warehouse, 
has  money  in  the  bank,  and  has  a  capital  stock  of  $10,000,  the  shares  being 
owned  by  Ames,  Bates,  and  Call.  Dale  is  a  creditor  of  the  company  and  seeks 
to  collect  his  debt  by  an  execution.  He  may  collect  by  levying  upon  the  plant, 
the  warehouse  and  the  money  in  the  bank,  but  he  cannot  seize  the  shares  of 
stock  owned  by  the  members  of  the  corporation,  for  these  shares  are  their 
personal  property,  and  not  a  part  of  the  capital  of  the  corporation. 

Certificate  of  Stock 


*@^^S^ 


Capital  Stock  ^  1.000  Sham  of 

siooooooo  ^mnrnttutfttg  qi        "<'<'<x'-'> 


Stock  Certi%cate  No.  «^  . 


JFlfifl  (BfrttfiM  rtg/  r-^  /Y?,   /y^..-/:^!^-^!^ 


is  entitled  to  tf^  "  ^ — shares  of  One  Hundred  Dollars  each,  in  the  capital  stock  of  the  Acme 
Manufacturing  Company,  fully  paid  and  non-assessable,  transferable  only  on  the  books  of  the 
Corporation  by  the  holder  hereof  in  person  or  by  attorney  upon  surrender  of  this  certificate  properly 

endorsed. 

3n  VUtuaa  ni^mof.  the  said  corporation  has  caused  this  certificate  to 

be  signed  by  its  duly  authorized  officers,  and  to  be  sealed  with  the  Stal  of 

''J^'^trC^^^    V::&g^  this     «^/^--^^a4-^ 


the  Corporation,  at'Ja'Tt^rC^^^    V?^^-  this — r^ ^-<^*^r^  day 


Assignment  of  Stock  Certificate 

jTor  Value  3[&eceibe)l,  /  hereby  sell,  assign  and  transfer  unto  Jennie  Baldwin 
Edgewater,  of  Chicago,  twenty  shares  of  the  capital  stock  represented  by  the  within 
certificate,  and  do  hereby  irrevocably  constitute  and  appoint  Henry  Appleby  my 
attorney  to  transfer  the  said  stock  on  the  books  of  the  within-named  Company,  with 
full  power  of  subscription  in  the  premises. 

HENRY  FALWORTHY. 
Dated  August  9,  1916,  in  the  presence  of 

WALTER  S.  WHEELER. 

360,  Capital  Stock.  By  means  of  a  capital  stock  divided 
among  the  members  of  the  corporation  it  is  possible  to  distribute 
the  authority  of  managing  the  corporation  and  receiving  its 
dividends  among  a  number  of  persons.  There  is  much  confusion 
in  the  use  of  the  terms  capital  and  capital  stock  as  applied  to 


CORPORATIONS  305 

corporatiotis.  The  capital  of  a  corporation  is,  as  defined  in  the 
preceding  section,  the  whole  amount  of  its  property  of  whatever 
kind.  The  capital  stock  is  the  amount  which  it  has  obtained ,^ 
or  is  authorized  to  obtain,  from  its  members  by  way  of  subscrip- 
tion. The  capital  stock  is  a  sum  fixed  by  the  corporate  charter 
as  the  amount  paid  in  or  to  be  paid  in  by  the  subscribers  for  the 
conduct  of  the  business  of  the  corporation.  The  stock  is  repre- 
sented by  certificates,  called  stock  certificates,  or  shares  of  stock, 
which  entitle  the  holder  to  share  in  the  management,  profits,  and 
assets  when  distributed,  of  the  corporation  to  the  extent  which 
his  stock  bears  in  proportionate  to  the  total  capital  stock  of  the 
corporation. 

By  their  subscriptions  to  the  capital  stock,  the  subscribers 
agree  that  they  will  pay  for  the  stock  subscribed  by  them  as 
calls  are  made.  A  stockholder  who  receives  his  original  stock 
at  a  discount  is  liable  upon  the  demand  of  creditors  of  the  cor- 
poration for  an  assessment  for  the  difference  between  the  pur- 
chase price  and  the  par  value  of  the  stock  bought.  It  is  not, 
however,  required  that  stock  shall  always  be  paid  for  in  money; 
it  may  be  issued  in  exchange  for  property  or  services.  If  the 
property  or  services  fairly  represent  the  par  value  of  the  stock 
issued  in  exchange  therefor,  there  is  no  further  liability  as  to 
creditors.     This  is  regulated  by  statute  in  some  states. 

EXAMPLE 

The  Dove  Company,  a  corporation,  is  created  with  a  capital  stock  of 
$30,000  distributed  among  Black,  Jones,  and  Young,  who  each  pay  one-third 
of  this  amount  to  the  company  and  receive  stock  certificates,  Young  paying 
his  share  by  contributing  his  inventions,  which  it  is  agreed  shall  be  valued  at 
$10,000.  The  capital  stock  of  the  corporation  is  $30,000,  but  the  capital  at 
the  beginning  of  the  enterprise  is  $20,000  in  cash  and  the  inventions  of 
Young,  an  entirely  different  thing  from  the  capital  stock. 

The  money  which  the  shareholder  pays  for  his  stock  becomes  a 
part  of  the  capital  of  the  corporation.  It  may  be  invested  in 
machinery,  land,  or  merchandise,  and  may  increase  or  decrease 
m  amount  and  value,  depending  upon  the  success  or  failure  of 
tiie  business. 

Each  corporation,  except  a  few  special  forms  of  charitable  and 
religious  corporations  known  as  non-stock  companies   (or  cor- 


306  CORPORATIONS 

porations  not  for  profit)  has  a  specified  capital  stock.  When 
corporations  are  formed  under  general  laws,  provision  for  the 
amount  of  capital  stock  is  made  in  the  articles  of  association 
and  in  the  application  for  a  certificate  of  incorporation.  The 
actual  capital  of  the  company  may  vary  materially  from  year  to 
year,  but  the  capital  stock  can  be  changed  only  by  amendment 
of  the  articles  of  association  with  the  permission  of  the  state, 
or  by  further  compliance  with  the  general  law  regarding 
corporations. 

361.  Membership  in  Corporations.  Membership  in  a  stock 
corporation  consists  simply  in  the  ownership  of  one  or  more 
shares  of  stock.  Stock  may  be  acquired  either  by  (1)  subscrip- 
tion, or  (2)  by  transfer  from  a  prior  holder,  either  by  purchase  or 
as  a  gift. 

The  contract  between  the  corporation  and  a  third  person  by 
which  the  third  person  agrees  to  contribute  a  certain  amount  of 
money  or  property  to  the  business  of  the  corporation  in  return 
for  the  issuance  to  him  of  stock  certificates  is  called  the  sub- 
scription. It  is  usual  to  secure  a  number  of  such  contracts  before 
the  formation  of  the  corporation  is  completed,  and  some  states 
require  that  certain  proportions  of  the  total  capital  stock  shall  be 
subscribed  and  other  proportions  paid  for  in  cash,  or  its  equiva- 
lent, before  the  corporation  may  be  created. 

After  shares  of  stock  are  issued  they  are  personal  property 
which  may  be  sold  or  transferred  by  gift  from  one  person  to 
another.  Some  formalities  must  be  observed  in  the  transfer  of 
shares  of  stock,  however,  that  are  not  required  for  the  transfer  of 
other  personal  property.  It  is  usual  to  transfer  a  stock  certificate 
by  an  assignment  of  the  interest  of  the  holder  to  the  purchaser, 
the  assignment  usually  being  written  upon  the  back  of  the 
certificate.  The  new  holder  then  secures  a  registry  of  the  trans- 
fer on  the  books  of  the  company,  which  registry  serves  as  notice 
to  the  corporation  that  he  is  now  the  holder  of  the  stock  and 
entitled  to  the  rights  of  the  shareholder.  It  is  customary  and  in 
some  corporations  compulsory  for  the  new  holder  to  deliver  up 
the  old  stock  certificate  to  the  corporation,  which  issues  a  new 
certificate  naming  him  as  the  stockholder.  The  corporation 
would  be  protected  if  it  paid  a  dividend  to  an  original  holder  in 


CORPORATIONS  307 

good  faith  without  notice  of  the  transfer  of  the  stock,  and  the 
new  holder's  only  remedy  would  be  against  the  prior  holder  of 
the  stock  who  had  wrongfully  received  the  dividend.  Similarly, 
creditors  are  entitled  to  assume  that  the  person  named  on  the 
books  of  the  company  is  the  owner  of  the  stock  and  may  levy 
upon  a  declared  dividend  as  his  property. 

EXAMPLE 

Brydon  owned  488  shares  In  the  North  Branch  Company.  He  sold  and 
assigned  a  part  of  this  stock  to  Gemmell,  who  gave  notice  to  the  company 
and  demanded  that  his  stock  be  registered  and  that  he  be  paid  all  future 
dividends.  The  officers  of  the  corporation  refused  to  register  his  shares.  He 
was  entitled  to  bring  suit  against  them  for  dividends  which  they  paid  to  Bry- 
don, as  he  had  given  them  notice  of  his  ownership  in  the  stock  and  any  future 
payment  to  Brydon  was  not  in  good  faith.  The  officers  had  no  right  to 
refuse  to  register  his  stock.     Gemmell  vs.  Davis,  75  Md.  546. 

362.  Classes  of  Stock.  The  capital  stock  of  a  corporation 
may  be  of  two  kinds:  (1)  common,  and  (2)  preferred.  Com- 
mon stock  is  stock  the  owners  of  which  are  not  in  any  way 
specially  preferred  or  favored.  The  owner  of  common  stock  is 
entitled  to  one  vote  in  the  management  of  the  corporation,  for 
every  share  he  owns.  He  shares  in  the  common  stock  dividends 
(and  in  case  of  the  dissolution  of  the  corporation,  in  the  assets) 
in  proportion  to  the  amount  of  stock  he  owns.  In  the  absence  of 
special  provisions  all  stock  is  common  stock. 

Preferred  stock  is  stock  which  entitles  the  owner  to  receive 
dividends,  or  to  share  in  the  distribution  of  corporate  assets, 
or  both,  before  or  in  preference  to  the  holders  of  common  stock. 
Preferred  stock  can  be  issued  only  when  the  corporation  has 
the  special  power  to  issue  it,  and  the  preferred  stock  certificate 
usually  states  that  the  holder  shall  be  entitled  to  a  certain  speci- 
fied dividend  on  his  investment  which  shall  be  paid  out  of  the 
profits  of  the  company  before  any  payment  of  dividends  shall  be 
made  to  holders  of  common  stock.  In  some  corporations  the 
preferred  stock  shares  equally  with  the  common  in  the  dividends 
remaining  after  the  preferred  dividends  have  been  paid,  but  as  a 
general  rule  the  preferred  stock  is  limited  to  a  fixed  amount, 
after  which  all  dividends  accrue  to  the  benefit  of  the  holders  of 
common  stock.  Thus  the  common  stock  frequently  receives 
larger  dividends  than  the  preferred. 


308  CORPORATIONS 

iKrticles;  of  Sncorporatton 

of 

^Buffalo  Jl^ill  ifflining  anb  BetJelopment  Company 

llnotD  aa  iflen  tip  tCfjefie  ^reficnW: 

7"/fa/  M^e,  the  undersigned,  George  N.  Wright,  James  A.  Lyons,  and  John 
E.  Evans,  for  ourselves,  our  associates  and  successors,  have  associated  ourselves 
together  for  the  purpose  of  forming  a  corporation  under  and  by  virtue  of  the  statutes 
and  laws  of  the  State  of  South  Dakota,  and  we  do  hereby  certify  and  declare  as 
follows,  viz.: 

1.  That  the  name  of  this  corporation  shall  be  "Buffalo  Hill  Mining  and 
Development  Company." 

2.  That  the  purpose  for  which  this  corporation  is  formed  is  to  conduct  the 
business  of:  (a)  Mining,  smelting,  refining,  reducing,  and  dealing  in  and  with 
all  sorts  of  ores,  metals,  and  minerals,  and  the  prospecting,  locating,  opening, 
operation,  and  developing  of  mines,  oil  wells,  quarries,  and  mineral  deposits  of  all 
descriptions;  (b)  Constructing  and  operating  mills,  factories,  machine  shops, 
and  industrial  plants  of  all  descriptions,  and  the  buying,  selling,  and  dealing  in 
and  with  all  supplies,  merchandise,  and  materials,  raw  and  prepared,  useful  or 
convenient,  in  connection  therewith. 

3.  The  place  where  the  principal  business  of  this  corporation  shall  be  trans- 
acted is  Pierre,  in  the  County  of  Hughes  and  State  of  South  Dakota. 

4.  The  term  for  which  this  corporation  shall  exist  shall  be  twenty  years. 

5.  The  number  of  directors  of  this  corporation  shall  be  three,  and  the  names 
and  residences  of  such,  who  are  to  serve  until  the  election  of  their  successors,  are 
as  follows: 

Names:  Residences: 

George  N.  Wright  Chicago,  III. 

James  A .  Lyons  Huron,  S.  Dak. 

John  E.  Evans  Mitchell,  S.  Dak. 

6.  The  amount  of  the  Capital  Stock  of  this  corporation  shall  be  and  is  Two 
Hundred  Thousand  Dollars,  divided  into  two  thousand  shares  of  the  par  value 
of  $100  each. 

3n  tE^titinwmp  ?EiH!)ereof.  we  have  hereunto  set  our  hands  this  29th  day  of 
September,  1916. 

[Signed]       GEORGE  F.  WRIGHT. 
JAMES  A.  LYONS. 
JOHN  E.  EVANS. 


CORPORATIONS  309 

Stock  Subscription 
Subscription  List 

STfje  €berreabj)  iHanufacturins  Company 

To  be  Incorporated  under  the  Laws  of  New  York 

Capital  Stock,  $50,000 
Shares,  $100  each 

We,  the  undersigned,  hereby  severally  subscribe  for  and  agree  to  take  at  its 
par  value  the  number  of  shares  of  the  capital  stock  of  The  Everready  Manufac- 
turing Company  set  opposite  our  respective  names,  and  agree  to  pay  therefor  in 
cash  on  demand  of  the  treasurer  as  soon  as  said  company  is  organized. 

Albany,  New   York,  February  24,  1916. 
Names  Addresses  Shares  Amount 

Gordon  Ambrose  Suffern,  N.  Y.  10  $1000 

H.    C.  Mackey  Albany,    N.  Y.     ,  5  500 

REVIEW   QUESTIONS 

1.  Henry  Ames,  a  brother  of  George  Ames,  desires  the  latter  to  assist  him 
in  financing  a  manufacturing  business,  suggesting  that  they  form  a  partnership. 
George  Ames  is  a  wealthy  man,  while  Henry  Ames  has  been  unsuccessful  many 
times  in  business,  but  apparently  has  a  valliable  proposition  this  time.  What 
advice  would  you  give  George  Ames  regarding  the  kind  of  business  organiza- 
tion which  should  be  formed  ?     Why? 

2.  Samuels  has  loaned  $5000  to  Johnson  and  seeks  to  collect  payment. 
He  secures  a  judgment  against  Johnson.  He  learns  that  Johnson  owns 
thirty  shares  of  stock,  valued  at  $100  a  share,  in  the  Acme  Manufacturing 
Company,  a  corporation.  This  is  one-third  of  all  the  capital  stock  of  the 
company,  which  has  assets  of  $20,000,  having  been  a  profitable  undertaking. 
How  may  Samuels  collect  his  claim?     Why? 

3.  Ames  and  Bates  acquire  all  the  stock  in  the  Cool  Dairy  Company, 
a  corporation,  and  desiring  to  sell  the  real  estate  belonging  to  the  company, 
execute  a  deed  in  their  own  names  as  the  owners  of  the  property  to  Dale. 
Does  Dale  secure  a  title  to  the  property?  Why?  Would  he  have  done  so  if 
the  Cool  Dairy  Company  had  been  a  partnership  between  Ames  and  Bates? 
Why? 

4.  The  A  corporation  receives  a  charter  from  the  state  empowering  it  to 
build  a  toll-bridge  across  a  river  and  to  charge  a  fee  for  travel,  the  charter 
providing  that  this  corporation  shall  have  the  exclusive  right  to  maintain  a 
toll-bridge  within  one  mile  of  that  place  for  thirty  years.  Two  years  later  the 
state  grants  another  charter  to  the  B  company  empowering  it  to  operate  a 
steam  ferry  within  a  hundred  yards  of  the  bridge.  This  cuts  the  revenue  of 
the  A  corporation  in  half.     Has  the  A  corporation  any  remedy?     Why? 


CHAPTER  XLI 
CORPORATIONS  —  Continued 


Powers < 


1. 


2. 


Express 

a. 

To  buy  and  sell  land 

b. 

To  acquire  property  by 

will 

c. 

To  borrow 

Implied- 

d. 

To  issue  notes 

e. 

To  pledge  its  property 

f. 

To  make  by-laws 

g- 

To  use  a  seal 

363.  Powers  of  a  Corporation.  Upon  its  organization  a 
corporation  possesses  the  power  to  act  in  accordance  with  the 
provisions  of  its  charter.  In  addition  it  has  certain  impHed  pow- 
ers. Among  these  are:  (1)  Power  to  acquire  land,  necessary 
for  the  business  of  the  corporation,  by  purchase;  (2)  power  to  sell 
and  transfer  the  title  to  land;  (3)  power  to  acquire  property  by 
will  from  another;  (4)  power  to  borrow  and  issue  negotiable 
instruments ;  (5)  power  to  mortgage  or  pledge  its  property ;  and 
(6)  power  to  make  by-laws,  rules,  and  regulations  for  the  conduct 
of  its  business;   (7)  power  to  use  a  seal. 

These  express  charter  powers  and  the  powers  implied  from 
the  creation  of  the  corporation  are  exercised  by  the  stockholders, 
acting  through  officers  elected  by  them,  called  the  hoard  of  direc- 
tors. The  stockholders  may  be  very  numerous  and  too  large  and 
unwieldy  a  body  to  assume  personally  the  active  management 
of  the  corporation.  They  control  the  corporation,  therefore, 
only  through  the  medium  of  the  board  of  directors.  These 
directors  are  elected  at  the  annual  meeting  of  the  stockholders, 
and  as  they  represent  the  will  of  the  holders  of  the  majority  of 
the  stock,  it  is  said  that  the  control  of  the  corporation  is  in  the 
hands  of  the  holders  of  the  majority  of  the  stock,  whose  power  is 
absolute  so  long  as  they  act  within  the  provisions  of  the  charter 
and  the  implied  powers  of  the  corporation. 

310 


CORPORATIONS  311 

364.  Directors — Powers  and  Duties.  The  powers  of  the 
directors  are  very  extensive  and  are  fixed  by  the  charter.  While 
the  control  of  the  corporation  is  in  the  hands  of  the  majority  of 
the  stockholders,  the  active  management  of  the  corporation  is  in 
the  hands  of  the  directors.  When  assembled  as  a  board,  they  are 
the  embodiment  of  all  the  corporate  powers,  except  those  exer- 
cised by  the  stockholders.  They  could  not  engage  the  capital 
of  the  corporation  in  an  unauthorized  enterprise,  nor  could  they 
increase  or  decrease  the  capital  stock,  dissolve  the  corporation, 
or  consolidate  it  with  another  corporation,  for  these  are  powers 
vested  in  the  stockholders  and  many  of  them  cannot  be  exercised 
even  by  them  without  the  unanimous  consent  of  all  the  stock- 
holders together  with  the  consent  of  the  state.  But  in  the  active 
business  management  of  the  corporation  within  its  express  and 
implied  powers,  the  directors  are  supreme. 

The  position  of  the  directors  is  virtually  that  of  business 
agents  of  the  majority  of  the  stockholders.  They  are  bound  to 
exercise  reasonable  care  in  the  management  of  the  corporate 
business,  and  are  liable  for  losses  resulting  from  their  carelessness 
and  neglect.  They  cannot  be  held  liable  for  losses  occasioned  by 
bad  business  judgment  if  they  have  acted  in  good  faith.  Being 
agents,  they  cannot  make  a  secret  profit  in  transacting  the  cor- 
porate business,  nor  secure  to  themselves  any  personal  advantage 
at  the  expense  of  the  stockholders. 

365.  Officers  and  Agents.  The  board  of  directors  usually 
elects  the  officers  of  the  corporation  in  accordance  with  the 
provisions  of  the  by-laws  of  the  corporation.  These  officers  are 
usually  the  president,  vice-president,  secretary,  and  treasurer. 
Sometimes  there  is  a  business  manager.  The  president  is 
usually  also  the  chairman  of  the  board  of  directors.  His  duties 
are  provided  by  the  by-laws  of  the  corporation,  and  when  no 
business  or  general  manager  is  elected  he  is  the  active  business 
head  of  the  corporation.  As  the  chief  officer  of  the  corporation, 
he  is  generally  empowered  to  execute  deeds,  negotiable  instru- 
ments, and  other  documents,  in  the  name  of  the  corporation. 

The  duties  of  the  vice-president,  secretary,  treasurer,  and 
business  manager  if  any,  are  the  usual  duties  falling  to  such 


312  CORPORATIONS 

officers.     Their  acts  are  binding  upon  the  corporation  if  within 
the  scope  of  their  general  authority. 

Other  officers  and  agents  are  sometimes  appomted  m 
accordance  with  provisions  of  the  by-laws.  These  officers  and 
agents  are  authorized  to  act  in  certain  matters  only,  and  they  are 
answerable  to  the  corporation  in  the  same  manner  that  an  ordi- 
nary agent  would  be  answerable  to  his  principal.  They  may 
bind  the  corporation  when  acting  within  the  scope  of  their  special 
authority,  and  are  liable  for  their  negligence. 

366.  Rights  of  Stockholders.  In  addition  to  the  right  of  the 
majority  of  the  stockholders  to  control  the  corporation  within 
the  scope  of  its  charter  powers,  the  individual  stockholders  have 
certain  rights  which  cannot  be  taken  from  them.  They  have  the 
right  to  inspect  the  books  and  records  of  the  corporation,  and  to 
inquire  at  all  reasonable  times  into  the  affairs  of  the  corporation. 
They  may  request  the  corporation  to  sue  a  director  believed  to  be 
guijty  of  a  breach  of  duty,  and  if  the  corporation  fails  to  act  may 
themselves  sue  in  the  name  of  the  corporation,  and  similarly 
may  prevent  the  officers  or  directors  of  the  corporation  from 
engaging  in  unlawful  enterprises  or  from  performing  unwar- 
ranted acts,  and  dissipating  the  resources  of  the  corporation. 
They  have  the  right  to  receive  dividends  after  they  have  been 
declared.  They  are  entitled  to  be  notified  of  all  meetings  of 
stockholders,  to  attend  all  meetings  and  participate  in  them  by 
voting  on  all  matters.  In  some  states  by  statute  they  are  allowed 
to  vote  by  proxy.  They  have  the  right  to  transfer  their  shares. 
Upon  the  dissolution  of  the  corporation,  those  who  hold  stock 
at  that  time  have  the  right  to  participate  in  the  division  of  the 
corporate  assets. 

367.  Liabilities  of  Stockholders.  One  advantage  that  has 
tended  to  popdilarize  corporations  more  than  any  other  is  that  in 
general  the  stockholders  are  not  personally  liable  for  the  corpo- 
rate debts,  beyond  the  amount  of  their  unpaid  stock  subscrip- 
tions. If  the  corporation  should  become  insolvent,  the  stock- 
holders may  lose  their  investment  in  the  stock,  but  if  their 
•stock  is  fully  paid  for  they  cannot  be  called  upon  to  pay  any  part 
of  the  corporate  debts  from  their  private  fortunes.  They  are, 
however,  liable  to  creditors  to  any  amount  which  may  be  unpaid 


CORPORATIONS  313 

on  their  stock  subscriptions.  The  creditors  are  entitled  to  reiy 
on  the  supposition  that  the  stockholders  have  paid  for  their 
stock  at  its  face  value,  and  have  contributed  to  the  capital 
and  assets  of  the  corporation  in  the  amount  which  their  stock 
certificates  would  indicate.  If  the  stock  has  been  issued  without 
full  payment  the  creditors  may  compel  the  stockholders  to  pay 
for  it.  For  this  reason  it  is  dangerous  to  buy  stock  that  is  sold 
at  less  than  par. 

In  many  states  there  are  special  statutes  providing  that  the 
stockholders  in  banking  corporations  are  liable  for  an  additional 
amount  equal  to  the  par  value  of  their  holdings.  Holders  of 
National  Bank  stock  always  have  this  liability.  A  few  states 
have  applied  this  rule  of  "double  liability"  to  all  corporations. 

If  a  stockholder  has  received  a  division  of  the  assets  of  the 
corporation  at  a  time  when  the  corporation  owed  creditors  which 
it  could  not  pay,  he  must  return  the  amount  which  he  received 
for  the  benefit  of  the  creditors.  It  would  be  extremely  unfair  to 
allow  a  corporation  in  failing  circumstances  to  divide  the  capital 
among  the  stockholders  and  leave  the  creditors  without  assets 
from  which  to  collect  their  debts. 

EXAMPLE 

A  corporation  was  organized  with  a  capital  stock  of  $100,000,  only  seventy- 
five  per  cent  of  the  stock  being  subscribed  for,  and  the  remaining  twenty-five 
per  cent  being  given  to  the  purchasers  of  the  stock  as  a  bonus.  Later  the 
corporation  became  insolvent,  and  the  creditors  were  permitted  to  compel  the 
stockholders  to  pay  in  full  for  unpaid  portions  of  their  subscriptions,  and 
for  the  stock  issued  as  a  bonus.  Fogg  vs.  Blair,  133  U.  S.  534;  Hosper  vs. 
Car  Co.,  48  Minn.  174. 

368.  Rights  of  Creditors.  As  previously  stated,  the  creditors 
of  a  corporation  are  entitled  (1)  to  assume  that  the  amount  of 
capital  purported  to  be  invested  in  the  corporation  is  in  fact  so 
invested  and  fully  paid  up;  and  (2)  to  be  paid  out  of  the  assets 
of  the  corporation  upon  its  insolvency  before  its  distribution 
among  the  stockholders.  A  further  right  of  creditors  is  to  protect 
their  claims  against  fraudulent  acts  which  will  cause  irreparable 
injury  to  their  security,  but  creditors  cannot  object  to  acts  of  the 
stockholders  which  are  outside  the  scope  of  their  charter  powers 
so  long  as  they  are  not  fraudulent,  or  do  not  make  the  corporation 
insolvent. 


314  CORPORATIONS 

369.  Unauthorized  Acts.  Acts  which  are  not  authorized 
by  the  charter  are  called  ultra  vires  acts,  the  term  meaning  beyond 
the  lawful  power  and  authority  of  the  corporation.  When  the 
majority  of  the  stockholders  of  a  corporation  seek  to  perform  an 
ultra  vires  act  they  are  in  reality  violating  the  two  contracts 
which  the  corporation  represents,  the  contract  between  the  state 
and  the  corporation  and  the  contract  between  the  stockholders, 
both  providing  that  the  corporation  shall  act  only  within  its 
charter  powers,  express  or  implied.  Consequently,  any  stock- 
holder who  discovers  that  the  corporation  is  acting,  or  is  about 
to  act,  through  its  directors,  representing  the  majority  of  the 
stockholders,  in  such  a  way  as  to  hazard  the  property  of  the 
corporation  in  unauthorized  undertakings,  may  bring  a  suit  to 
restrain  such  action.  The  state  may  also  protect  itself  against 
the  violation  of  the  contract  represented  by  the  charter,  and  pre- 
vent usurpation  of  powers,  by  bringing  a  suit  to  dissolve  the 
corporation  and  terminate  its  charter. 

370.  Defective  Organization.  Sometimes  the  incorporators 
fail  to  comply  strictly  with  the  general  incorporating  act,  but 
nevertheless  proceed  to  act  as  if  they  had  created  a  corporation. 
Such  an  organization  has  not  a  valid,  legal  existence  as  a  cor- 
poration, but  is  known  as  a  de  facto  corporation.  The  failure  to 
comply  with  the  necessary  requirements  of  organization  has 
prevented  it  from  being  a  true  corporation.  To  constitute  a 
de  facto  corporation  three  things  must  be  shown:  (1)  A  charter, 
or  general  incorporation  law;  (2)  an  unsuccessful  attempt  to 
organize  a  corporation  under  the  law;  and  (3)  a  use  of  the  rights 
claimed  to  be  conferred  by  it.  When  these  three  elements  are 
present,  and  the  incorporators  have  attempted  to  form  a  cor- 
poration, and  despite  their  failure,  have  acted  as  though  they 
were  a  corporation,  only  two  classes  of  people  can  object  to  their 
acting  as  a  corporation.  These  are  the  state,  which  may  com- 
mence legal  proceedings,  known  as  ouster  proceedings  to  prevent 
a  further  use  of  the  powers,  and  stock  subscribers,  who  may 
refuse  to  pay  for  their  stock  until  a  true  and  valid  corporation 
is  created.  The  rights  of  creditors  and  others  who  deal  with  the 
organization  as  a  corporation  are  the  same  as  though  a  true 
corporation   had   been   created,   except   in   a   few   states,    most 


CORPORATIONS  315 

notably  Illinois,  where  it  has  been  decided  that  the  members  of  a 
de  facto  corporation  are  liable  to  creditors  as  partners;  that 
is,  they  cannot  claim  the  benefit  of  limited  liability. 

EXAMPLE 

An  eflfort  was  made  to  incorporate  under  a  state  law  requiring  the  certi- 
ficate of  incorporation  to  be  subscribed  and  acknowledged  by  five  members, 
and  recorded  in  the  county  in  which  its  principal  office  was  located.  Only 
four  members  signed  the  certificate,  and  the  state  brought  suit  to  prevent  the 
corporation  from  transacting  business.  The  court  granted  the  state  the 
relief  requested.     People  vs.  Water  Company,  97  Cal.  276. 

371.  Dissolution  of  Corporation.  A  corporation  may  be 
dissolved:  (1)  By  expiration  of  the  time  mentioned  in  the 
charter;  (2)  by  a  surrender  of  the  charter,  accepted  by  the  state, 
or  made  in  accordance  with  the  provision  of  the  general  act; 
(3)  by  forfeiture  of  the  corporate  charter,  through  a  proceeding 
in  the  courts  for  that  purpose,  because  of  non-use  or  mis-use  of 
the  charter  and  powers  granted ;  or  (4)  by  repeal  of  the  corporate 
charter  by  the  legislature,  in  states  where  the  power  to  repeal  such 
charter  is  reserved  to  the  state  in  the  state  constitution. 

Upon  the  expiration  of  the  time  for  which  a  corporation  was 
created  it  is  dissolved  automatically.  It  can  no  longer  transact 
business  except  such  as  is  necessary  to  wind  up  its  affairs.  Meth- 
ods are  usually  provided  by  which  a  certain  proportion  of  the 
stockholders  may  vote  to  close  up  the  affairs  of  the  corporation, 
dissolve  it,  and  divide  its  capital  after  payment  of  creditors. 
The  statute  must  be  carefully  followed  to  effect  a  valid  dissolu- 
tion. The  state  is  at  all  times  empowered  to  forfeit  the  charters 
of  corporations  which  have  mis-used  their  powers,  or  to  prevent 
corporations  from  continuing  in  business  when  their  creation 
was  defective.  Not  only  may  the  state  do  this,  but  in  nearly  all 
of  the  states  there  are  constitutional  provisions  declaring  that  the 
power  to  repeal,  alter,  and  amend  corporate  charters  is  reserved 
to  the  legislature  and  cannot  be  granted  away.  Hence,  although 
the  charter  is  a  contract  between  the  state  and  the  corporation, 
this  reserved  power  of  the  state  enables  future  legislatures  to 
enact  many  corporate  Jaws  which  would  otherwise  be  forbidden. 

372.  Liquidation  of  Assets.  The  management  of  the 
dissolving  corporation  is  placed  in  the  hands  of  a  liquidating 


316  CORPORATIONS 

officer.  His  duties  are  to  collect  all  the  corporate  assets,  reduce 
them  to  money  if  possible,  pay  off  creditors,  and  distribute  the 
balance  proportionately  among  the  stockholders.  The  right  of 
creditors  to  the  assets  of  a  defunct  corporation  are  primary, 
and  the  rights  of  the  stockholders  secondary. 

373.  Foreign  Corporations.  One  state  cannot  authorize 
a  corporation  to  transact  business  in  any  other  state,  but  by  the 
reciprocal  courtesy  and  good-will  of  states,  the  right  of  a  cor- 
poration chartered  by  one  state  to  do  business  in  another  is  quite 
generally  recognized.  This  privilege,  however,  is  subject  to 
many  restrictions,  and  conditions  are  frequently  imposed  upon 
these  corporations,  called  "foreign"  corporations,  with  which 
they  must  comply  before  engaging  in  business  in  a  state  in  which 
they  were  not  chartered.  Among  the  usual  conditions  are  that 
the  corporation  shall  file  with  the  state  in  which  it  proposes  to  do 
business  a  copy  of  its  charter,  a  statement  of  its  financial  resources, 
and  a  list  of  its  officers. 

REVIEW  QUESTIONS 

1.  Malone,  a  minority  stockholder  in  the  Morris  Service  Company, 
a  corporation,  discovers  that  the  directors  have  unanimously  agreed  to  engage 
the  funds  of  the  corporation  in  booming  a  tract  of  land  owned  by  them  for 
their  personal  benefit.  The  directors  are  also  the  majority  stockholders,  but 
the  act  in  which  they  are  engaged  is  beyond  the  corjX/rate  powers.  May 
Malone  sue  them  in  the  name  of  the  corporation  without  any  further  act  on 
his  own  part?     Why? 

2.  The  Belden  Machine  Company,  a  corporation  authorized  to  engage 
in  manufacturing  and  trading,  invests  its  money  in  a  banking  enterprise. 
What  persons,  if  any,  may  object?     How?     Why? 

3.  Several  men  meet  and  attempt,  in  good  faith,  to  organize  a  corporation 
under  a  general  act  of  the  legislature.  They  fail  to  conform  to  a  certain  pro- 
vision of  the  law  with  which  they  are  unfamiliar,  but  proceed  to  act  and  trans- 
act business  as  a  corporation.  Lawson,  who  has  subscribed  for  twenty 
shares  of  stock  in  the  corporation,  on  discovering  this  fact,  refuses  to  pay  for 
it;  and  Wilson,  who  has  contracted  to  build  an  office  for  the  corporation, 
refuses  to  perform  his  contract.  Has  the  organization  any  rights  against 
Lawson?     Against  Wilson?     Why? 

4.  The  directors  of  the  Congress  Hotel  Company,  a  corporation,  spent 
large  sums  of  money  in  improving  the  dining  room  serv'ice,  hiring  orchestras 
and  employing  entertainers.     The  dining  room  had  never  been  a  revenue- 


CORPORATIONS  317 

producing  part  of  the  establishment,  and  continued  to  lose  money,  the  com- 
pany eventually  becoming  insolvent  by  reason  of  the  expenditures  of  the 
directors.  They  had  hoped  to  attract  patronage  from  rival  hotels  in  the  city, 
but  it  was  generally  admitted  that  their  course  had  been  an  unwise  business 
policy.     May  the  directors  be  held  liable  for  the  loss?     Why?     To  whom? 


PRACTICAL   SUGGESTIONS 

In  a  corporation: 

I.  As  a  stockholder  you  are  subject  to  no  financial  liability,  except  in 
case  of  a  banking  corporation,  beyond  the  amount  still  to  be  paid  on  your 
subscription.  A  creditor  of  a  corporation  can  satisfy  his  claim  out  of  the 
assets  of  the  corporation  only. 

II.  A  stockholder  is  not  an  agent  to  bind  the  corporation  by  his  acts 
unless  he  has  special  authority. 

III.  A  corporation  is  not  dissolved  by  the  death,  insanity,  or  bankruptcy, 
of  a  stockholder. 

IV.  A  stockholder  may  sell  his  stock  without  working  a  dissolution  of 
the  corporation. 

V.  The  holders  of  the  majority  of  the  stock  have  the  right  to  manage 
the  business  of  the  corporation  so  long  as  they  remain  within  the  powers 
contained  in  the  charter. 

VI.  You  have  no  voice  in  the  corporate  management  within  the  charter 
limits  beyond  the  power  to  vote  in  proportion  to  your  stock  holdings,  unless 
yju  are  an  officer. 


CHAPTER  XLII 

JOINT  STOCK   COMPANIES 

374.  A  Joint  Stock  Company  is  a  company  that  is  similar, 
in  business  organization,  to  a  corporation,  but  is  in  reality  a 
partnership  with  a  large  number  of  members. 

The  joint  stock  company  is  a  form  of  business  organization  so  little  used 
that  it  would  not  be  necessary  to  treat  it  were  it  not  for  the  fact  that  many 
persons  confuse  joint  stock  companies  with  corporations,  and  it  is  important 
that  the  distinction  between  the  two  be  fully  understood. 

375.  The  organization  of  a  joint  stock  company  is  similar 
to  that  of  a  corporation  in  that  stockholders*  meetings  are  held, 
a  board  of  directors  is  elected,  and  business  is  transacted  by 
officers  selected  by  the  directors.  The  interests  of  the  various 
members  of  the  company  are  represented  by  shares  of  stock,  as  in 
a  corporation,  and  the  profits  of  the  business  are  distributed  in 
the  form  of  dividends. 

376.  Liability  of  Members.  The  resemblance  to  a  corpora- 
tion is  in  the  form  of  organization  as  described  above,  and  ends 
there.  The  members  of  a  joint  stock  company  are  partners,  and 
as  a  partner  each  is  liable  for  all  of  the  debts  of  the  company. 

377.  Compared  with  Partnerships.  As  above  stated,  joint 
stock  companies  are  like  partnerships  in  the  liability  of  members. 
They  also  resemble  partnerships  in  that  their  formation  requires 
no  special  state  authority,  but  simply  the  agreement  of  those  who 
thereby  become  members.  Like  a  partnership,  a  joint  stock 
company  must  sue  or  be  sued  in  the  names  of  its  members,  and 
not  in  the  name  of  the  company. 

378.  Compared  with  Corporations.  It  has  been  shown  that 
in  their  organization  and  manner  of  doing  business,  joint  stock 
companies  are  like  corporations.  They  also  resemble  corpora- 
tions in  having  the  "power  of  succession" — they  are  not  auto- 
matically dissolved  upon  the  death  of  a  member.     They  are 

318 


JOINT  STOCK  COMPANIES  319 

dissolved  by  lapse  of  the  time  for  which  they  were  organized,  or 
by  decree  of  court.  They  cannot  be  dissolved  at  the  demand  of 
a  member. 

Stock  companies  being  similar  in  organization  to  corporations, 
it  sometimes  happens  that  ineffectual  attempts  to  create  a 
corporation  result  in  the  formation  of  a  stock  company,  if  the 
company  goes  ahead  and  transacts  business  without^  its  charter. 
If  a  corporation  continues  in  business  after  its  charter  has 
expired,  without  renewal,  it  continues  as  a  stock  company. 

The  corporation  is  the  outgrowth  of  the  joint  stock  company. 
Though  the  two  are  organized  and  managed  in  the  same  way,  the 
promoters  of  new  organizations  of  the  kind  usually  seek  corporate 
charters,  because  of  the  freedom  from  personal  liability  enjoyed 
by  the  stockholders  in  a  corporation.  This  is  the  principal 
reason  for  the  practical  disappearance  of  the  joint  stock  company. 


CHAPTER  XLIII 
INSURANCE 

379.  Introduction.  Insurance  is  a  form  of  contract  by  which 
one  party,  in  consideration  of  a  sum  of  money,  agrees  to  reim- 
burse another  party  in  the  event  of  the  loss  of,  or  injury  to,  or 
death  of,  the  subject  matter  specified  in  the  contract.  The  party 
assuming  the  risk  is  called  the  insurer:  the  other  party  to  the 
contract  is  called  the  insured.  Since  insurance  is  a  contract,  the 
ordinary  rules  of  the  law  of  contracts  are  applicable  to  it. 

The  theory  of  insurance  is  that  while  a  loss  might  overwhelm 
an  individual,  if  the  same  loss  is  distributed  among  many,  it  can 
be  borne  without  serious  inconvenience  to  any  one  of  them.  The 
manner  in  which  the  loss  is  borne  by  the  many  is  by  their  making 
relatively  small  periodical  payments  to  create  a  fund  from  which 
any  loss  is  paid  when  it  occurs.  Insurance  is  an  economic 
necessity  and  performs  an  important  function  in  commercial 
transactions. 

380.  Policies  and  Premiums.  The  contract  by  which  the 
insurer  agrees  to  compensate  the  insured  in  case  of  loss  of  the 
nature  specified  in  it  is  called  an  insurance  policy.  The  maximum 
amount  which  the  insurer  will  pay  in  case  of  loss  is  called  the 
face  of  the  policy.  The  amount  which  the  insured  must  pay  for 
complete  or  partial  indemnity  in  case  of  loss  is  called  the  premium. 
This  premium,  together  with  other  premiums  received  from 
similar  insurance  policies,  is  used  to  form  a  fund  sufficient  to  pay 
indemnities  as  required.  The  insurer  ordinarily  derives  his  profit 
from  the  business  by  using  this  fund  and  receiving  interest 
for  its  use. 

381.  Elinds  of  Insurance.  The  principal  kinds  of  insurance 
are:    (1)  Fire;   (2)  life;   (3)  marine;  and  (4)  casualty. 

Fire  insurance  is  a  contract  by  which  the  insurer  agrees  to 
indemnify  the  insured  against  loss  by  fire. 

320 


INSURANCE  321 

Life  insurance  is  a  contract  to  pay  a  designated  person  a  sum 
of  money  in  the  event  of  the  death  of  the  person  whose  Hfe  is 
insured. 

Marine  insurance  is  a  contract  to  indemnify  the  insured 
against  loss  of  property  in  ships  and  their  cargoes  by  the  perils 
of  the  sea. 

Casualty  insurance  is  a  contract  to  indemnify  the  insured 
against  accidental  injury,  some  policies  insuring  the  person  and 
others  insuring  property. 


FIRE  INSURANCE 

382.  Form  of  Policy.  The  contract  of  fire  insurance  speci- 
fies: (1)  The  insurer;  (2)  the  insured ;  (3)  the  property  insured ; 
(4)  the  conditions  under  which  the  insurer  will  bear  the  loss,  if 
any;  (5)  the  term  and  premium  of  the  policy,  and  (6)  a  maximum 
amount  beyond  which  the  insurer  will  not  be  responsible  for  loss. 

Contracts  of  insurance  containing  the  last  mentioned  speci- 
fication are  designated  as  open  policies,  and  are  the  customary 
form  of  fire  insurance.  In  the  event  of  loss  suffered  under  such  a 
policy  the  insured  must  make  claim  showing  the  amount  of 
damage  actually  suffered.  If  this  be  less  than  the  total  amount 
of  the  policy,  he  can  only  recover  for  the  actual  loss  suffered. 
In  no  event  can  he  recover  beyond  the  maximum  amount  speci- 
fied in  the  policy.  This  form  of  policy  is  distinguished  from  a 
valued  policy  in  which  the  value  of  the  property  to  be  insured  is 
conclusively  agreed  to  by  the  parties  and  in  the  event  of  loss  no 
question  is  raised  as  to  the  amount  of  the  damage,  but  solely  as 
to  whether  the  loss  which  the  policy  covered  occurred.  The 
valued  policy  is  occasionally  used  in  fire  insurance,  but  is  generally 
confined  to  life  and  marine  policies. 

In  many  states  the  form  of  policies  of  fire  insurance  has  been 
regulated  by  statute,  the  New  York  Standard  form  of  policy  being 
popular  at  present.  Other  states  have  made  some  variations 
in  the  form  of  policy  required,  but  in  general  the  New  York  form 
has  been  adopted  as  the  standard  fire  insurance  policy. 


322  INSURANCE 

383.  Who  May  Be  Insurer.  At  common  law  any  person 
could  become  an  insurer,  but  the  exercise  of  this  right  is  now  quite 
generally  limited  in  practice  to  corporations  created  and  existing 
under  special  laws  relating  to  insurance  companies,  and  as  the 
business  of  these  companies  is  public  in  its  nature,  they  are 
controlled  and  regulated  for  the  protection  of  the  public.  In 
addition  to  the  regular  insurance  companies,  doing  business  for  a 
profit,  there  are  several  so-called  fraternal  orders  or  mutual  benefit 
companies,  which  instead  of  attempting  to  make  a  profit  by  the 
accumulation  and  use  of  premiums,  aim  to  distribute  the  losses  as 
they  occur  in  the  form  of  annual  assessments  among  the  members. 

384.  Who  May  Be  Insured.  The  fire  insurance  policy  being 
a  contract,  it  is  essential  that  the  parties  shall  have  capacity  to 
contract.  If  a  person  under  legal  or  physical  disability  enters 
into  a  contract  of  fire  insurance  the  contract  is  voidable  at  his 
option  like  any  other  contract. 

Not  only  do  the  ordinary  requirements  of  contracts  apply  to 
fire  insurance  policies,  but  in  addition  the  insured  must  possess 
what  is  known  as  an  insurable  interest  in  the  property  insured. 

385.  Insurable  Interest.  A  person  is  said  to  have  an  insur- 
able interest  in  property  when  he  is  so  situated  in  reference  to  it 
that  by  its  destruction  he  will  suffer  an  actual  loss  of  money  or 
legal  right,  or  incur  a  legal  liability.  If  this  insurable  interest 
were  not  required  to  be  present,  an  insurance  policy  would  be  a 
mere  wager  in  which  one  person  would  virtually  be  wagering  a 
small  amount  of  money  against  a  larger  sum  that  a  contingent 
event  would  happen.  The  insured  could  purchase  a  policy  by 
payment  of  the  premium  on  property  which  he  did  not  own,  and 
would  be  in  a  position  to  receive  a  specified  amount  in  the  event 
of  its  destruction.  He  would  have  no  interest  in  its  preservation, 
but  would  be  concerned  only  with  its  demolition,  and  to  permit 
the  creation  of  such  contracts  would  be  antagonistic  to  public 
policy.  If,  however,  the  insured  has  an  insurable  interest  in  the 
thing  insured,  there  is  not  so  great  a  temptation  on  his  part  to 
destroy  it  for  the  purpose  of  recovering  the  insurance,  and  the 
contract  is  deemed  valid  in  law.  The  doctrine  requiring  the 
presence  of  this  insurable  interest  in  the  property  insured  is  a 
reasonable  one. 


INSURANCE  323 

It  is  not  necessary  that  the  insured  shall  actually  own  the 
property  insured,  provided  he  possesses  a  valuable  interest  in  it. 
He  must  possess  some  property  interest,  not  purely  speculative, 
but  real,  which  is  of  such  a  nature  as  to  make  him  concerned  with 
its  preservation. 

EXAMPLE 

A  stockholder  in  the  Merchants'  Steamship  Company,  a  corporation, 
purchased  a  policy  of  insurance  on  property  belonging  to  the  corporation, 
paying  the  premium.  Upon  the  destruction  of  the  property  he  sued  the 
insurance  company  for  the  amount  of  his  loss  and  was  allowed  to  recover,  his 
insurable  interest  in  the  property  being  found  in  the  fact  that  as  a  stockholder 
in  the  company  he  was  interested  in  the  preservation  of  its  property  so  that 
profits  might  be  distributed  in  the  form  of  dividends.  Riggs  vs.  Insurance 
Company,  125  N.  Y.  7. 

386.  Representations.  A  written  application  is  often 
required  for  a  fire  insurance  policy.  A  statement  made  in  this 
application,  or  one  made  orally  at  the  time  of  applying  for  the 
insurance,  is  called  a  representation.  If  a  representation  is 
material  and  is  made  falsely  or  fraudulently  the  policy  will  be 
void,  for  the  insurer  has  a  right  to  inquire  into  the  circumstances 
of  the  risk  which  he  is  assuming  and  to  rely  on  answers  to  his 
questions.  It  is  presumed  that  the  insurer  will  request  informa- 
tion on  all  material  points  and  that  the  insured  is  not  bound  to 
advance  information  except  in  answer  to  questions.  The  con- 
cealment of  facts  will  not  ordinarily  render  a  fire  insurance  policy 
void  unless  it  clearly  appears  that  the  concealment  was  a  part  of  a 
general  scheme  to  defraud  the  insurer. 

EXAMPLE 

The  following  question:  "For  what  purpose  is  the  building  occupied  and 
by  whom?"  was  answered,  "By  the  applicant;  for  the  manufacture  of  lead 
pipe  only,"  while  as  a  matter  of  fact  the  building  was  also  used  to  manufacture 
reels  on  which  to  wind  the  lead  pipe.  This  was  not  a  misrepresentation,  how- 
ever, for  it  was  immaterial  and  was  reasonably  included  in  the  general  business 
of  manufacturing  lead  pipe.  Collins  vs.  Insurance  Company,  10  Gray 
(Mass.)  155. 

387.  Warranties  are  express  promises  or  undertakings  by  the 
insured  which  are  made  a  part  of  the  policy.  They  differ  from 
representations  which  are  statements  made  preliminary  to  the 
contract  of  insurance  and  are  merely  inducements  for  entering 


324  INSURANCE 

into  it  and  which  are  not  written  into  the  policy.  Being  included 
as  terms  in  the  policy  of  insurance,  warranties  have  the  effect 
of  conditions  precedent  to  liability  under  the  contract  and  the 
contract  may  be  avoided  if  they  are  not  fully  performed.  A 
representation  need  only  be  substantially  correct,  and  it  avoids 
the  policy  only  if  false  on  so  material  a  point  that  it  actually 
induced  the  company  to  enter  into  the  contract.  On  the  other 
hand,  a  warranty  must  be  exactly  performed,  and  its  materiality 
cannot  be  questioned,  since  the  parties  have  made  it  one  of  the 
conditions  of  the  contract. 

Among  the  usual  warranties  included  in  fire  insurance  policies 
are  clauses  prohibiting  an  increase  in  the  hazard  of  the  risk  by 
changes  in  the  subject  matter,  prohibiting  a  change  of  ownership, 
the  keeping  or  using  of  dangerous  articles  on  the  premises,  the 
permitting  of  the  premises  to  become  vacant  and  unoccupied 
for  more  than  a  limited  period  of  time,  and  the  taking  out  of 
insurance  in  furtherance  of  an  illegal  act. 

EXAMPLES 

1.  An  insurance  policy,  containing  a  clause  that  it  did  not  insure  property 
used  in  an  illegal  business,  was  taken  out  to  cover  a  stock  of  liquor  exp>osed  for 
sale  in  territory  where  the  sale  of  liquor  was  prohibited  by  law.  Upon  the 
destruction  of  the  stock  of  liquor  no  recovery  was  allowed  against  the  insurance 
company.'     Kelly  vs.  Insurance  Company,  97  Mass.  288. 

2.  A  saw-mill  was  insured,  the  pxylicy  containing  the  usual  clause  pro- 
hibiting vacancy  for  more  than  ten  days.  Because  of  the  breaking  of  a  saw 
and  the  low  stage  of  water,  the  mill  was  not  used  for  more  than  ten  days, 
although  all  the  machinery  remained  and  there  was  lumber  to  be  sawed  as 
soon  as  there  was  sufficient  power.  The  court  decided  that  the  clause  against 
vacancy  and  unoccupancy  had  not  been  broken.  Whitney  vs.  Insurance 
Company,  72  N.  Y.  117. 

3.  The  owner  of  a  house  moved  out  for  six  months,  leaving  only  a  few 
pieces  of  furniture  and  occasionally  sleeping  there.  This  amounted  to  a 
vacation  of  the  house,  the  attempted  use  being  insufficient  to  keep  the  insur- 
ance alive.     Insurance  Company  vs.  Hamilton,  82  Md.  88. 

388.  Assignment  of  Policies.  The  New  York  Standard  form 
of  fire  insurance  policy  and  most  other  policies  specifically  require 
the  consent  of  the  insurance  company  to  an  assignment  of  the 
policy.  This  is  in  accordance  with  the  general  policy  of  the  law 
to  hold  insurance  contracts  non-assignable  without  the  consent 


INSURANCE  325 

of  the  insurer,  and  void  if  assigned  without  the  consent  of  the 
insurer.  If  the  insurer  consents  to  an  assignment  there  is 
virtually  a  new  contract  formed  between  the  insurer  and  the 
person  to  whom  the  contract  is  assigned.  After  an  assignment 
with  consent  the  policy  will  be  unaffected  by  any  future  act  of 
the  original  holder. 

EXAMPLE 

Smith  owned  certain  property,  insured  it,  sold  it  to  Brown,  and  assigned 
the  insurance  policy  to  Brown  with  the  consent  of  the  insurance  company. 
Brown  then  mortgaged  back  the  property  to  Smith,  and  reassigned  the  policy 
to  Smith  without  the  consent  of  the  company.  Later  Brown  committed  an 
act  which  violated  the  policy.  Upon  the  destruction  of  the  building  by  fire, 
Smith  sued  on  the  policy  but  was  refused  recovery,  the  company  not  having 
consented  to  the  second  assignment,  and  the  act  of  Brown  being  a  violation 
of  which  the  company  could  take  advantage.  Smith  vs.  Insurance  Company, 
120  Mass.  90. 

389.  Proof  and  Recovery  of  Loss.  It  is  generally  provided 
in  the  insurance  policy  that  notice  of  loss  must  be  given  immed- 
iately to  the  company,  and  that  proofs  of  the  nature  and  amount 
of  loss  must  be  presented  to  the  company  within  a  limited  period, 
usually  sixty  days. 

EXAMPLES 

1.  After  the  great  Chicago  fire  in  1871  notice  of  the  loss  by  fire  was  not 
given  to  the  company  until  five  weeks  after  the  fire.  This  was  considered  to 
be  an  "immediate  notice  of  loss"  under  the  peculiar  circumstances,  on  account 
of  the  resulting  general  confusion  at  that  time.  Insurance  Company  vs. 
McGinnis,  87  111.  70;  Insurance  Company  vs.  Gould,  80  111.  388. 

2.  A  delay  of  forty-eight  hours  in  giving  notice  of  the  loss  was  a  failure 
to  comply  with  the  provision  requiring  "immediate"  notice,  where  there  was 
no  good  reason  for  the  delay.  Brown  vs.  Insurance  Company,  40  Hun. 
(N.  Y.)  101. 

3.  A  fire  continued  for  several  days  and  within  sixty  days  after  it  was 
extinguished,  but  more  than  sixty  days  after  it  originated,  proofs  of  loss  were 
made  to  the  company  which  had  insured  the  building.  This  was  a  compliance 
with  the  provision  requiring  that  proofs  of  loss  be  made  within  sixty  days, 
as  the  time  does  not  begin  to  elapse  under  this  provision  until  the  fire  is  extin- 
guished and  the  ruins  sufficiently  cooled  to  permit  an  examination  of  the  loss. 
Wall  Paper  Company  vs.  Insurance  Company,  175  N.  Y.  226. 

The  policy  usually  insures  against  "all  direct  loss  or  damage 
by  fire."  Fire  is  defined  to  mean  combustion  plus  light  and  heat, 
and  destruction  by  chemicals  so  as  to  leave  a  charred  surface, 


326  INSURANCE 

but  damage  when  there  has  been  no  flame  is  not  a  loss  covered  by 
a  fire  insurance  policy.  Similarly,  damage  caused  by  lightning 
without  a  resulting  combustion  is  not  a  loss  by  fire.  The  policy 
also  covers  only  hostile  fires  as  distinguished  from  friendly  fires, 
a  friendly  fire  being  one  which  was  intended  by  the  insured,  but 
which  incidentally  produces  certain  unintended  losses.  These 
losses  are  not  recoverable  under  a  fire  insurance  policy.  A  fire 
may,  however,  originate  as  a  friendly  fire  and  get  beyond  control 
so  as  to  become  a  hostile  fire  in  which  event  any  loss  will  be  recov- 
erable from  the  insurance  company. 

There  can  be  no  recovery  from  the  insurer  if  the  damage  by 
fire  is  intentional  on  the  part  of  the  insured,  but  the  insurer 
cannot  refuse  payment  for  losses  on  the  grounds  that  the  fire 
was  caused  by  the  carelessness  of  the  insured. 

EXAMPLES 

1.  A  flue  in  the  drying  room  of  a  sugar  refinery  was  left  closed  one  night 
and  the  following  morning  the  sugar  was  found  to  be  ruined  by  smoke  from  the 
heating  plant.  No  recovery  was  allowed  as  the  only  fire  in  the  place  was  the 
one  in  the  heating  plant  which  had  been  intended.  Austin  vs.  Drewe,  6 
Taunt.  (Eng.)  436. 

2.  Way  built  a  fire  in  the  stove  to  burn  some  papers,  and  the  soot  in  the 
chimney  became  ignited  and  damaged  the  chimney.  This  loss  was  recoverable 
for  the  fire  had  become  a  hostile  fire.  Way  vs.  Insurance  Company,  166 
Mass.  67. 

•  The  insurer  is  liable  for  losses  which  (1)  follow  directly  from 
a  hostile  fire  without  intervening  cause,  and  (2)  which,  although 
not  directly  following  from  the  fire,  are  the  natural  consequences 
from  it  which  result  in  the  ordinary  sequence  of  events. 

EXAMPLE 

Damages  resulting  to  goods  while  they  were  being  removed  from  threat- 
ened injury  by  fire,  were  promptly  chargeable  to  the  insurance  company. 
White  vs.  Insurance  Company,  57  Me.  91. 

390.  Special  Right  of  Insurer  Paying  Loss.  Upon  the  pay- 
ment of  a  fire  loss  the  insurer  acquires  whatever  rights  the  insured 
had,  to  have  recovery  against  third  persons  for  the  loss.  The 
insurer  is  said  to  be  subrogated  to  the  rights  of  the  insured.  Thus 
when  one's  house  has  been  destroyed  by  a  fire  originating  from 
the  negligence  of  a  third  person,  the  owner  may  recover  for  his 


INSURANCE  •     327 

loss  either  from  the  insurance  company  or  from  the  person  start- 
ing the  fire.  He  cannot  do  both.  If  he  recovers  from  the  msur- 
ance  company,  the  company  then  acquires  the  right  to  recover 
from  the  third  person.  If  the  owner  should  first  recover  damages 
from  the  third  person  and  thereafter  collect  for  the  loss  from  the 
insurance  company,  the  latter  could,  upon  discovering  the  facts, 
recover  from  the  owner  the  amount  paid  on  the  policy. 

391.  Double  Insurance.  In  the  event  that  the  insured  holds 
policies  from  a  number  of  companies,  he  could  in  the  absence  of 
statute  or  special  provisions  in  the  policy  collect  his  loss  from 
any  one  of  the  companies,  provided  it  did  not  exceed  the  max- 
imum of  that  particular  policy.  That  company  in  turn  could 
recover  a  pro  rata  share  from  each  of  the  other  companies.  To 
avoid  this  circuitous  procedure,  it  is  customary  for  policies  to 
provide  that  the  company  shall  be  liable  for  only  that  proportion 
of  the  loss  which  the  amount  of  its  policy  bears  to  the  total 
amount  of  insurance. 


REVIEW    QUESTIONS 

1.  Armour  applied  for  an  insurance  policy  and  in  answer  to  a  question  oa 
on  the  application  blank  as  to  the  amount  of  insurance  on  his  building  stated 
that  he  had  $10,000.  The  company  issued  him  a  policy  for  $3000,  relying  on 
this  statement,  but  would  have  refused  to  do  so  had  he  carried  a  smaller 
amount  of  other  insurance.  As  a  matter  of  fact  all  his  other  insurance  had 
expired,  though  he  did  not  know  it.  Could  the  insurance  company  avoid  its 
policy  for  $3000?     Why? 

2.  Peyson  insured  his  home  for  $5000.  His  wife  left  shortly  afterwards 
to  visit  her  parents  and  was  absent  for  eight  months.  The  furniture  remained 
in  the  house  and  Peyson,  who  was  a  commercial  traveler,  slept  in  the  house 
whenever  he  was  in  the  city,  which  was  frequently.  A  fire  destroyed  the 
house.  The  insurance  policy  contained  a  clause  providing  that  the  policy 
was  void  if  the  premises  were  vacant  and  unoccupied  for  more  than  ten  days. 
Could  Peyson  recover  for  his  loss?     Why? 

3.  Jenkins  took  out  an  insurance  policy  on  his  home.  He  sold  the  house 
to  Smith  and,  with  the  consent  of  the  insurance  company,  assigned  the  policy 
to  Smith.  The  policy  provided  that  no  gasoline  should  be  used  on  the  prem- 
ises with  the  consent  of  the  owner.  After  the  sale  and  assignment  of  the 
policy,  Jenkins  ordered  a  barrel  of  gasoline  delivered  to  his  house,  and  the 
deliver>-man,  not  knowing  of  his  removal,  delivered  the  gasoline  to  the  house 
occupied,  by  Smith.     Before  Smith  discovered  the  gasoline,   it  ignited  by 


328     '  INSURANCE 

spontaneous  combustion  and  started  a  fire  which  destroyed  the  house.     May 
Smith  recover  from  the  insurance  company?     Why? 

4.  Johnson  had  taken  out  insurance  on  his  barn.  In  order  to  drive 
out  wasps  he  lighted  a  wisp  of  hay  and  thrust  it  into  the  dry  timbers  of  the 
barn.  Other  hay  in  the  vicinity  was  ignited  and  the  barn  destroyed.  May 
Johnson  recover  for  his  loss  from  the  insurance  company?     Why? 

5.  Murphy  insured  his  store  building  and  its  contents  against  loss  by  fire. 
A  fire  occurred  which  caused  the  following  items  of  damage:  $3000  by  destruc- 
tion of  merchandise;  $2000  by  injury  to  the  building;  $500  by  injury  to  goods 
from  water  in  attempting  to  check  the  fire;  $200  by  goods  stolen  while  being 
removed  from  the  building;  and  $400  for  medical  services  and  nursing  occa- 
sioned by  his  falling  from  a  ladder  while  attempting  to  remove  the  goods'. 
The  policy  stated  a  maximum  of  $15,000.  For  what  losses  may  Murphy 
recover?     Why? 


CHAPTER  XLIV 

INSURANCE  —  Continued 
LIFE  INSURANCE 

392.  Form  of  Policy.  Life  insurance,  being  conditioned  for 
the  payment  of  a  definite  sum  upon  the  happening  of  a  particular 
event  —  the  death  of  the  person  whose  Hfe  is  insured  —  requires 
a  valued  policy.  It  is  immaterial  whether  the  death  of  the  person 
has  occasioned  a  loss  in  a  greater  or  less  sum  to  the  person  to 
whom  payment  is  to  be  made,  for  the  valuation  stated  in  the 
policy  itself  is  the  controlling  factor.  i 

393.  The  Types  of  Valued  Policies  which  predominate  in  life 
insurance  are:  (1)  Straight  life,  (2)  limited  payment  life,  and 
(3)  endowment  policies.  The  first  two  types  are  similar  in  that 
the  insurance  company  contracts  to  collect  a  stated  annual  or 
semi-annual  premium  and  to  pay  a  definite  sum  to  a  designated 
person  upon  the  death  of  the  person  whose  life  is  insured.  These 
two  types  differ  only  in  the  fact  that  under  a  straight  life  policy 
these  payments  continue  until  death,  while  under  a  limited 
payment  life  policy  it  is  provided  that  the  payment  of  premiums 
shall  cease  after  a  specified  period,  usually  ten,  twenty,  or  thirty 
yqars. 

The  purpose  of  these  policies  is  the  protection  of  those  depend- 
ent upon  that  person.  These  policies  have  given  rise  to  the  popu- 
lar statement  that  "in  life  insurance  one  must  die  to  win,"  which 
merely  means  that  the  conditions  of  the  policy  are  such  that  no 
direct  benefit  can  be  derived  during  the  life-time  of  the  person 
whose  life  is  insured.  They  fill  an  economic  function,  however, 
in  that  they  provide  adequate  protection  against  death  without 
a  sufficient  estate  to  provide  for  those  dependent. 

The  endowment  policy  contains  the  provision  that  the  insur- 
ance company  will,  at  the  end  of  a  stated  term,  usually  ten  or 
twenty  years,  pay  a  stated  sum  to  the  person  insured,  regardless 
of  death,  or  that  if  death  occurs  before  that  time  the  sum  will  be 
paid  at  the  time  of  death.     It  is  popularly  designated  as  "invest- 

329 


330  INSURANCE 

merit"  insurance,  because  it  provides,  not  only  for  protection 
against  death,  but  also  for  a  return  of  the  fund  invested  in  the 
form  of  premiums. 

The  premiums  for  this  kind  of  insurance  are  much  higher 
than  for  straight  life  insurance,  because  the  company  not  only 
insures  the  life  of  the  insured  but  promises  a  return  at  the  end  of  a 
stated  period  if  the  insured  does  not  die. 

394.  Parties.  There  are  three  parties  to  contracts  of  life 
insurance.  These  are:  (1)  The  insurer,  being  the  person  or 
company  assuming  the  risk;  (2)  the  insured,  being  the  person 
taking  out  the  policy  and  with  whom  the  contract  of  insurance 
is  made;  and  (3)  the  beneficiary,  being  the  person  to  whom  the 
money  is  to  be  paid  upon  the  death  of  the  insured. 

The  second  person  is  generally  person  whose  life  is  insured, 
though  not  necessarily  so. 

The  third  person,  the  beneficiary,  is  sometimes  eliminated  as  a 
separate  person,  by  the  insured  taking  a  policy  payable  to  himself 
or  to  his  "estate,"  and  in  the  event  of  his  death  the  money  is 
treated  as  any  other  part  of  his  personal  property,  and  distributed 
among  his  heirs  accordingly. 

395.  Insurable  Interest.  The  person  paying  the  premiums 
must  have  an  insurable  interest  in  the  life  insured  in  order  to 
create  a  valid  contract  of  insurance.  One,  of  course,  has  such  an 
interest  in  his  own  life,  and  a  creditor  also  has  an  insurable  inter- 
est in  the  life  of  his  debtor  to  the  extent  of  the  debt.  A  partner 
has  an  insurable  interest  in  the  life  of  his  co-partner,  and  a  child, 
if  dependent  on  a  parent  for  support  and  education,  has  such  an 
interest,  as  also  has  a  parent  if  dependent  upon  his  child  for 
support.  A  married  person  has  an  insurable  interest  in  the  life 
of  his  wife  or  her  husband. 

In  life  insurance  it  is  sufficient  if  this  interest  exists  at  the 
beginning  of  the  policy.  (In  fire  insurance  an  insurable  interest 
must  continue  throughout  the  life  of  the  policy.) 

Blood  relationship  is  strong  proof  of  an  insurable  interest, 
though  it  is  not  conclusive,  and  the  rule  is  generally  observed, 
except  in  New  Jersey,  where  the  doctrine  of  insurable  interest  is 
immaterial  in  life  insurance  policies,  that  there  must  be  some 


INSURANCE  331 

pecuniary  interest,  not  wholly  contingent  and  remote,  in  the 
person  whose  life  is  insured. 

If  an  applicant  for  life  insurance  has  paid  premiums  but  no 
insurance  has  been  effected,  as  would  be  the  case  if  the  company 
should  show  that  he  had  no  insurable  interest,  he  may  as  a  rule 
recover  the  premiums  paid,  unless  he  has  been  guilty  of  fraudulent 
misrepresentation.  This  is  because  the  consideration  has  failed. 
If,  however,  the  risk  has  in  fact  attached,  although  it  has  after- 
wards terminated,  and  the  insured  has  therefore  had  some  benefit 
from  the  contract,  he  cannot  recover  the  premiums.  This 
might  happen  if  the  insured  has  violated  some  term  of  the  policy 
so  as  to  give  the  insurer  the  right  to  cancel  the  policy. 

EXAMPLE 

A  college  which  had  received  many  gifts  from  its  founder,  purchased  a 
policy  of  insurance  on  his  life,  paid  the  premiums,  and  on  his  death  claimed  the 
amount  of  the  policy.  Its  right  to  receive  this  was  denied  by  the  courts,  as 
the  college  had  no  insurable  interest  in  the  life  of  its  founder,  there  being  a 
mere  speculative  expectation  of  future  g^dvantage.  Trinity  College  vs.  Insur- 
ance Company,  113  N.  C.  244. 

As  to  Beneficiaries.  The  general  rule  is  that  the  beneficiary 
of  a  life  insurance  policy  does  not  need  to  possess  an  insurable 
interest  in  the  life  of  the  insured.  This  is  because  the  beneficiary 
is  not  a  direct  party  to  the  contract.  The  contract  exists  for 
his  benefit,  but  it  was  created  between  the  insurer  and  the 
insured,  and  an  insurable  interest  in  the  life  insured,  possessed  by 
the  person  contracting,  is  sufficient. 

396.  Assignment  of  Policies.  Policies  usually  contain 
provisions  in  reference  to  their  assignment,  and  when  they  do, 
the  provisions  are  binding.  It  is  no  uncommon  thing  for  policies 
to  be  assigned  for  security  or  otherwise,  and  the  usual  require- 
ments are  that  notice  to  the  company  and  its  assent  to  the  assign- 
ment are  necessary  to  validate  it,  and  in  addition  there  must 
always  be  a  delivery  of  the  policy  to  the  assignee.  An  invalid 
or  unauthorized  assignment  of  a  policy  does  not  destroy  its 
validity,  but  is  a  mere  nullidity,  and  leaves  the  insurance 
money  payable  to  the  parties  originally  designated  in  the  policy. 


332  INSURANCE 

397.  Representations  and  Warranties.  The  same  general 
principles  as  to  representations  and  warranties  apply  in  life 
insurance  as  apply  in  fire  insurance.  It  is  sufficient  if  the  answers 
to  questions  in  the  application  blank  are  stated  with  substantial 
accuracy,  unless  there  is  actual  fraud,  and  words  and  phrases  are 
given  their  ordinary  meaning. 

EXAMPLE 

The  question,  "To  what  extent  do  you  use  alcohol?"  was  answered, 
"None."  The  policy  could  not  be  avoided  by  the  company  for  misrepresen- 
tation by  showing  an  occasional  use.     Grand  Lodge  vs.  Belcham,  145  111.  308. 

Nor  will  the  falsity  of  volunteered  information  avoid  the  pol- 
icy unless  it  was  both  material  and  relied  upon  by  the  company. 

EXAMPLE 

The  question,  "To  whom  do  you  wish  your  insurance  payable  in  the  event 
of  death?"  was  answered,  "To  my  wife,  Emily  Louise  Vivar."  This  woman 
had  not  yet  become  the  applicant's  wife,  but  this  did  not  avoid  the  policy, 
for  the  information  was  not  material,  and  the  beneficiary  was  sufficiently 
designated.     Vivar  vs.  Supreme  Lodge',  52  N.  J.  L.  455. 

It  is  customary  to  incorporate  answers  to  questions  regarding 
the  physical  condition  and  health  of  the  applicant  in  the  policy 
of  insurance.  Statements  so  made  are  warranties  and  must  be 
substantially  true  or  the  company  may  refuse  to  perform  its 
contract.  The  good  faith  of  the  applicant  will  be  insufficient, 
if  the  statement  was  actually  false. 

EXAMPLES 

1.  Grattan  applied  for  a  policy  of  life  insurance,  naming  his  brother  as 
beneficiary.  He  answered  an  inquiry  on  the  policy  as  to  the  condition  of  his 
health,  by  stating  that  he  had  "good  health."  Upon  his  death  his  brother 
sought  to  recover  the  insurance  money  and  the  company  sought  to  avoid  the 
policy  by  showing  that  Grattan  had  dangerous  symptoms  at  the  time  of  issu- 
ance of  the  policy  and  was  not  in  good  health.  The  brother  was  permitted  to 
recover,  for  the  term  "good  health"  refers  to  the  general  condition  in  which  one 
believes  oneself.     Grattan  vs.  Insurance  Company,  92  N.  Y.  274. 

2.  Yung  stated  in  answer  to  a  question  in  a  policy  that  he  did  not  have 
Bright's  disease.  As  a  matter  of  fact  he  was  in  an  advanced  stage  of  the 
disease,  though  he  did  not  know  it.  The  company  could  avoid  the  policy. 
Insurance  Company  vs.  Yung,  113  I,nd.  159. 


INSURANCE  333 

Incontestable  clause.  Most  insurance  policies  provide  that 
after  a  stated  period,  usually  one  or  two  years  from  the  issuance 
of  the  policy,  the  company  cannot  avoid  the  policy  on  the  ground 
of  misrepresentation  or  breach  of  warranty  by  the  applicant  at 
the  time  of  the  issuance  of  the  policy.  This  is  to  protect  the 
policyholder,  and  is  based  upon  the  idea  that  the  company  should 
discover  any  facts  which  it  intends  to  take  advantage  of  within 
that  time  and  should  not  be  permitted  to  allow  the  insured  to 
continue  paying  premiums  if  the  policy  is  to  be  avoided.  By  this 
clause  the  company  waives  all  defenses,  except  that  of  insurable 
interest,  which  is  a  requirement  imposed  by  public  policy  and 
cannot  be  waived. 

398.  Payment  of  Premiums.  It  is  usual  for  insurance  pol- 
icies to  contain  a  clause  requiring  premiums  to  be  paid  on  or 
before  a  certain  fixed  date.  If  the  company  should  accept  an 
overdue  payment  of  premium,  the  right  to  object  to  the  delin- 
quency is  waived. 

The  amount  of  the  premium  in  life  insurance  is  based  upon 
tables  of  average  life  of  persons  of  the  age  of  the  applicant, 
called  mortality  tables.  The  premium  is  increased  with  the  age 
of  the  applicant. 

399.  Deaths  Covered  by  Policy.  Not  all  deaths  are  covered 
by  a  life  insurance  company,  among  the  usual  limitations  being 
that  the  company  shall  be  relieved  from  paying  insurance  if 
the  insured  is  executed  as  a  criminal  by  the  state,  or  is  killed 
while  engaged  in  the  commission  of  a  crime.  Much  confusion 
has  resulted  over  the  question  as  to  the  liability  of  an  insurance 
company  to  pay  for  death  by  suicide.  The  American  courts 
have  generally  allowed  recovery  for  death  by  suicide  on  the 
ground  that  the  person  committing  the  act  of  self-destruction 
is  insane  at  the  time,  and  is  not  committing  the  act  for  the  pur- 
pose of  defrauding  the  company  which  has  insured  his  life.  If 
it  be  shown,  however,  that  the  taking  out  of  the  insurance  was  a 
part  of  a  fraudulent  scheme,  payment  may  be  successfully 
contested.  It  is  now  customary  for  policies  to  provide  that  they 
are  incontestible  in  the  event  of  suicide  committed  at  any  time 
after  three  years  from  the  time  of  their  issuance. 


334  INSURANCE 

CASUALTY  INSURANCE 

400.  Casualty  Insurance  includes  a  great  variety  of  policies, 
covering  many  different  forms  of  risks.  The  condition  upon 
which  the  insurance  company  agrees  to  pay  for  a  loss  is  that  some 
accident  shall  injure  the  person  or  property  of  the  insured.  The 
form  of  policy  may  be  either  open  or  valued,  the  latter  being  often 
adopted  in  the  case  of  personal  accident  insurance  an  agreed 
valuation  being  fixed  for  certain  injuries,  as  the  loss  of  a  limb,  the 
loss  of  an  eye,  or  death.  New  forms  of  casualty  insurance  are 
being  constantly  created  to  satisfy  the  demands  of  the  commer- 
cial world,  which  through  this  medium  seeks  protection  against 
the  uncertainties  of  trade  and  commerce. 

Personal  Accident  Insurance.  This  is  insurance  by  which 
the  insured  is  protected  against  accidents  causing  him  personal 
injury.  The  amount  of  premium  is  regulated  by  the  hazard 
incident  upon  the  business  in  which  the  insured  is  engaged. 
The  indemnity  is  conditioned  for  payment  upon  circumstances 
resulting  from  an  external,  violent,  and  accidental  cause.  Thus  a 
death  by  accidentally  inhaling  gas,  or  by  drowning,  is  the 
result  of  an  external  cause,  as  is  illness  caused  from  poisons. 
Violent  causes  may  include  even  slight  physical  injuries,  such  as 
the  sting  of  a  bee,  the  contact  of  an  injurious  substance  with  the 
skin,  resulting  in  blood  poison,  and  even'  an  injury  resulting 
from  fright.  Accident  policies  usually  provide  a  complete  list  of 
payments  which  will  be  made  by  the  company  upon  the  happen- 
ing of  specified  events,  and  as  the  forms  of  policies  differ  mater- 
ially, no  valuable  generalizations  can  be  made. 

Employers'  Liability  Insurance  is  designed  to  protect  employ- 
ers against  liability  for  injuries  sustained  by  workmen  in  their 
employ.  The  agreement  on  the  part  of  the  company  is  to  indem- 
nify the  insured,  in  the  event  that  he  becomes  legally  liable  to  pay 
damages,  and  to  undertake  to  make  all  legal  defense  necessary. 

Title  Guaranty  Insurance  is  a  means  popular  in  the  larger 
cities,  of  protecting  the  purchasers  of  land  against  defect  in  the 
title  previous  to  their  ownership.  The  insurance  company, 
through  its  attorneys,  investigates  the  title  and  then  guarantees, 
or  insures  it,  against  defects.  • 


INSURANCE  335 

Plate  Glass  Insurance  protects  the  owner  of  glass  windows 
against  loss  by  breakage,  the  insurer  of  the  glass  usually  replacing 
it  upon  breakage. 

Steam  Boiler  Insurance  is  designed  to  protect  the  owner  or 
occupant  of  a  building  against  immediate  loss  or  damage  caused 
by  the  explosion,  collapse,  or  rupture  of  a  boiler,  and  protects  the 
insured  against  personal  responsibility  to  others  by  reason  of  such 
breakage. 

Fidelity  Insurance  protects  employers  against  the  dishonesty 
of  their  employees,  or  against  the  wrongful  acts  of  others  occupy- 
ing positions  of  trust. 

Credit  Insurance  protects  the  business  man  against  loss  caused 
by  the  dishonesty  or  insolvency  of  his  debtors. 

Burglary  Insurance  protects  against  loss  by  theft. 

In  addition  to  these  many  forms  of  casualty  insurance,  new 
forms  are  constantly  being  devised,  such  as  Automobile  Insur- 
ance, Rent  Income  Insurance,  Insurance  against  Sickness.  The 
premiums  vary  with  the  nature  of  the  risk.  Hail  and  Cyclone 
insurance  is  popular  among  farmers,  protecting  them  against 
damage  to  crops  by  these  causes. 

Many  of  these  forms  of  insurance  are  issued  by  mutual 
companies  in  which  the  fund  for  the  payment  of  losses  is  collected 
by  annual  assessments  upon  the  members,  but  in  nearly  every 
form  it  is  also  possible  to  find  an  insurance  corporation  which  will 
assume  the  risk  upon  the  advance  payment  of  an  annual  premium. 


REVIEW    QUESTIONS 

1.  Ames,  a  creditor  of  Bates,  took  out  an  insurance  policy  on  Bates'  life 
for  $15,000.  Bates  at  that  time  was  indebted  to  Ames  for  $1200.  What 
objection,  if  any,  might  be  made  to  this  policy  and  by  whom? 

2.  Sarah  Innes,  an  orphan,  was  reared  by  George  Carpenter.  She 
was  never  legally  adopted  by  him,  however,  although  he  paid  her  various 
expenses,  including  a  course  in  a  university.  When  she  was  twenty-two, 
she  insured  Carpenter's  life  for  $20,000,  payable  to  her  on  his  death.  What 
objection,  if  any,  might  be  made  to  this  policy  and  by  whom?     Why? 


336  •  INSURANCE 

3.  Paterson  insured  the  life  of  a  woman  to  whom  he  was  married,  and 
whom  he  supposed  to  be  his  wife.  As  a  matter  of  fact  she  had  another  husband 
living  from  whom  she  had  not  been  divorced,  so  that  the  marriage  to  Paterson 
was  a  nullity.  Upon  her  death  may  Paterson  recover  the  amount  of  the 
policy?     Why? 

4.  Wilkinson  in  answer  to  the  following  question  in  an  application  for 
life  insurance,  "Have  you  ever  met  with  any  accidental  or  serious  injury,  and 
if  so,  what?"  answered  "No."  The  company,  when  sued  for  the  insurance 
money  after  his  death,  defended  on  the  ground  that  he  had,  several  years 
before  taking  out  the  policy,  fallen  a  considerable  height  from  a  tree  and  was 
sick  for  two  weeks  at  the  time,  but  that  this  in  no  way  contributed  to  his  death. 
May  the  beneficiary  recover?     Why? 


CHAPTER  XLV 


REAL  ESTATE 


(1 


ESTATES 

Inheritable,    or  estates  in 
fee-simple 
1.   As  to  Lengxh{  fa.    For   [Dower 

Non-in-        I        life< Curtesy 
heritablej  [Homestead 

[b.   For  a  term  of 
years 

{1.   In  possession 
2.    In  Futuro,    or  in 
the  future 

{1.    In  severalty 
2.   By  joint  tenancy 
3.    By  tenancy  in 
common 

401.  Real  Property  consists  of  the  right  in  lands  and  such 
things  as  are  permanent,  fixed  and  immovable.  It  includes 
rights  in  the  minerals  that  are  beneath  the  surface^of  the  earth, 
water  flowing  upon  it,  and  things  of  a  permanent  nature  attached 
to  the  earth,  such  as  buildings,  trees,  and  the  unsevered  fruits 
of  the  soil. 

402.  Source  of  Real  Estate  Law.  The  laws  respecting  real 
estate  were  developed  at  a  very  early  period  in  England,  and  the 
English  conceptions  became  fully  implanted  in  the  colonial  minds 
before  the  separation  of  the  United  States  from  Great  Britain. 
These  conceptions  have  continued  to  the  present  time,  and  the 
early  English  law  is  even  now  frequently  quoted  as  authority 
for  decisions  respecting  real  estate,  and  in  interpreting  rules. 

The  English  law  regarding  real  estate  was  developed  while 
England  was  under  the  feudal  system  of  government,  the  feudal 
system  having  itself  been  a  development  from  the  Roman  law 
and  the  primitive  customs  of  the  early  Teutonic  tribes.     It  was 

337 


338  REAL  ESTATE 

introduced  into  England  from  France  by  William  the  Conqueror, 
and  formed  the  basic  theory  of  real  estate  law.  By  that  theory 
the  original  title  to  all  land  vested  in  the  king,  who  was  deemed  to 
hold  it  and  to  rule  by  divine  right.  Immediately  below  him  were 
the  great  nobles,  the  king's  tenants  in  chief,  among  whom  the 
lands  were  parceled  out  in  large  districts  to  be  held  by  them  in 
return  for  military  service  to  the  king.  The  estates  of  the  nobles 
were  in  turn  re-parceled  among  under  lords,  and  again  and  again 
until  the  earth-tenant,  or  the  actual  cultivator  of  the  soil,  was 
reached.  Each  holder  was  bound  to  return  money  or  services 
to  his  superior,  the  title  to  the  lands  being  always  ultimately 
traceable  to  the  king,  or  over-lord. 

Under  the  feudal  system  several  forms  of  tenure,  or  land 
holding,  developed,  varying  in  the  character  of  the  duties  owed 
to  the  superior  lord,  and  the  rights  possessed  by  the  tenant. 
These  underwent  various  changes  until  in  the  year  1645  practi- 
cally all  the  tenures  came  to  be  known  as  "freeholds,"  by  which 
name  all  estates  in  land  have  been  known  since  that  time,  with  the 
exception  of  a  few  English  church  estates. 

In  the  United  States,  the  title  to  all  lands  is  considered  to  have 
been  originally  derived,  since  the  Revolution,  from  either  the 
state  or  the  United  States.  The  idea  of  feudal  dues  and  obli- 
gations has,  however,  been  eliminated  from  our  law,  and  the 
ownership  of  land  is  absolute  and  unconditional  in  the  owner, 
except  as  against  the  right  of  the  state  to  purchase  land  for  public 
purposes  by  the  power  of  eminent  domain,  even  against  the  will 
of  the  owner,  the  right  of  escheat,  and  the  right  of  the  government 
to  enact  regulations  by  virtue  of  its  police  power. 

403.  An  Estate  is  the  nature  and  extent  of  the  interest  which 
a  person  has  in  real  property.  There  are  many  different  kinds 
of  estates  in  land,  the  most  important  being  as  shown  in  the  out- 
line at  the  beginning  of  this  chapter. 

404.  Fee  Simple.  This  is  the  largest  estate  possible  to  be 
possessed  in  property.  It  is  the  absolute  ownership  and  title, 
and  may  be  defeated  only  by  the  state  under  its  power  of  eminent 
domain,  escheat,  or  police  power.  The  owner  holds  it  not  only 
for  his  own  life,  but  he  owns  that  future  enjoyment  which  will 
descend  to  his  heirs  according  to  the  laws  of  descent.     This  is  the 


REAL  ESTATE  339 

common  manner  of  holding  land  in  the  United  States.  The 
owner  in  fee  simple  may  use  the  property  as  he  may  see  fit,  or 
he  may  dispose  of  it  to  whomever  he  chooses  by  deed  or  will. 

405.  Life  Estate.  Instead  of  being  possessed  of  the  absolute 
title  to  land,  a  person  may  hold  it  only  for  the  term  of  his  own  life, 
or  the  life  of  some  other  person.  Such  an  estate  is  known  as  a 
life  estate.  It  is  not  an  estate  of  inheritance,  for  he  who  owns  it, 
known  as  the  life-tenant,  possesses  no  rights  extending  beyond 
his  own  life,  or  the  life  of  the  other  person  whose  life  is  designated 
to  measure  the  term  of  the  estate. 

The  life  tenant  has  the  right,  however,  to  the  full  use  of  the 
land,  and  all  its  profits,  during  his  estate.  He  may  cut  all  neces- 
sary wood  for  his  fuel  and  to  repair  his  fences  and  buildings, 
during  the  continuance  of  his  estate,  but  he  is  not  entitled  to 
commit  acts  which  materially  injure  the  future  value  of  the  estate, 
these  acts  being  known  as  waste,  and  being  wrongful  on  his  part. 
This  may  be  either  actual  or  permissive  w^aste,  permissive  waste 
occurring  when  buildings  are  allowed  to  decay.  In  the  absence 
of  agreement,  the  tenant  is  bound  to  keep  the  premises  in  as  good 
repair  and  condition  as  he  found  them,  inevitable  accidents 
excepted.  The  tenant  for  life  is  likewise  bound  to  pay  the  taxes 
and  interest  on  incumbrances. 

The  life  tenant  is  also  entitled  to  emblements,  these  being  the 
annual  crops  growing  on  the  land  at  the  termination  of  the  estate. 
The  theory  for  allowing  the  life  tenant  these  crops  is  that  he  could 
not  forsee  the  time  of  death  of  the  person  on  whose  life  the  estate 
depended,  and  should  be  entitled  to  crops  which  he  had  planted 
in  expectation  of  reaping.  The  life  tenant  may  part  with  his 
estate  or  any  portion  of  it,  but  cannot  lease  or  grant  it  to  another 
for  a  period  to  extend  beyond  the  life  estate. 

A  life  estate  may  be  created  by  deed  or  by  will,  or  by  operation 
of  law.  The  rights  of  dower,  curtesy,  and  homestead  are  created 
by  operation  of  law. 

EXAMPLE 

Brown,  dying,  left  a  will  giving  all  his  real  property  to  his  wife  to  be  held 
and  enjoyed  by  her  as  long  as  she  should  live.  On  her  death  their  children 
were  to  come  into  possession  and  enjoyment  of  the  property.  The  wife  had 
a  life  estate. 


340  REAL  ESTATE 

406.  Dower  is  the  right  which  a  wife  has,  upon  the  death  of 
her  husband,  in  lands  which  her  husband  owned  in  fee  simple, 
while  she  was  under  his  protection.  It  is  a  life  estate  in  one  equal 
third  part  of  all  such  lands,  and  is  a  right  of  which  she  cannot  be 
deprived  by  any  act  of  her  husband.  She  may,  however,  waive 
it  by  joining  with  him  in  a  deed  during  his  lifetime,  or  she  may 
herself  convey  it  either  before  or  after  his  death.  She  may  also 
abandon  her  right  to  dower  by  accepting  a  provision  in  her  hus- 
band's will  giving  her  other  property  instead  of  the  dower  interest. 
The  right  of  dower  is  for  the  protection  of  the  wife  and  she  is  not 
compelled  to  accept  a  provision  in  a  will  giving  her  other  property, 
unless  she  so  desires.  She  cannot  ordinarily  have  both  the  dower 
right  and  the  property  left  her  under  a  will,  but  must  disclaim 
one  or  the  other.  In  some  states  this  right  has  been  limited  by 
statute,  and  in  others  enlarged,  though  in  general  the  common 
law  right  of  dower,  as  previously  defined,  remains  unchanged. 

EXAMPLES 

1.  Ames  dies  possessed  of  640  acres  of  land,  leaving  a  widow  and  several 
children.  He  leaves  no  will.  The  widow  is  entitled  to  receive  the  rents  and 
profits  of  one-third  of  this  land  for  her  life.  The  remaining  two-thirds  would 
be  immediately  distributed  among  his  children  and  the  one-third  in  which 
she  had  her  dower  right  would  go  to  the  children  at  her  death. 

2.  Bates,  in  contemplation  of  marriage,  made  an  agreement  with  his 
prospective  wife  by  which  she  accepted  stocks  and  bonds  to  the  value  of 
$10,000  instead  of  dower.  At  Bates'  death,  she  would  not  be  entitled  to 
any  dower  in  property  owned  by  her  husband, 

3.  Call,  a  married  man,  sold  some  of  his  property,  known  as  Blackacre, 
to  Dale,  Call's  wife  not  joining  in  signing  the  deed  from  Call  to  Dale.  After 
Call's  death,  Mrs.  Call  may  assert  her  dower  right  in  this  property. 

407.  Estate  by  Curtesy.  At  common  law  the  husband 
acquired  by  his  marriage  the  right  to  all  of  the  rents  and  profits 
from  his  wife's  property,  and  at  her  death,  if  a  child  had  been 
born  to  them  capable  of  inheriting  from  her,  the  husband  became 
entitled  to  an  estate  by  curtesy,  which  was  a  life  estate  in  all  the 
real  property  which  his  wife  had  owned  in  fee  during  their  mar- 
riage relationship.  Many  states  have  abolished  this  right  of  the 
husband*;    others    have    limited    it    to    a   right    equivalent    to 

*  California,  Colorado,  North  Dakota,  South  Dakota,  Georgia,  Idaho, 
Maryland,  Iowa,  Kansas,  Maine,  Minnesota,  Nevada,  Washington,  Missis- 
sippi, South  Carolina,  and  Wyoming. 


REAL   ESTATE  341 

a  dower  right  f;    and  still  others  have  modified  the  right  so  as  to 
give  it  effect  even  though  no  child  be  born.  J 

408.  Homestead.  This  is  a  life  estate  which  is  of  purely 
statutory  origin  and  did  not  exist  at  common  law,  but  now  pre- 
vails throughout  the  United  States.  It  is  the  right  to  a  life 
interest  in  a  certain  amount  of  land,  which  right  is  given  to  the 
head  of  a  family  and  cannot  be  seized  to  satisfy  the  demands  of 
creditors.  The  extent  and  value  of  land  allowed  as  a  homestead 
differs  widely  in  the  various  states,  and  the  statutes  of  the  par- 
ticular state  must  be  consulted  to  determine  its  limits.  The 
policy  of  law  permitting  such  an  exemption  from  the  claims  of 
creditors  is  one  of  protection  for  the  community  against  the 
possibility  that  persons  will  be  made  public  burdens  if  creditors 
take  all  of  their  property,  leaving  them  not  even  a  home. 

The  claim  to  a  right  of  homestead  attaches  to  practically  all 
estates  known  to  the  law,  but  a  common  requirement  is  that  the 
person  claiming  this  right  must  reside  upon  the  land  and  actually 
make  it  his  home,  and  that  he  must  have  a  family  dependent 
upon  him. 

In  some  states  the  widow  has  a  right  to  exercise  this  right  of 
homestead  after  the  death  of  her  husband,  so  that  she  not  only 
has  her  dower  right  to  one-third  of  his  real  estate  in  general  for  her 
life,  but  also  the  entire  life  estate  in  a  limited  part  which  is  her 
homestead.  The  signatures  of  both  husband  and  wife  are 
required  to  convey  a  homestead  interest  to  a  purchaser. 

409.  Estate  for  Years.  This  is  the  estate  generally  desig- 
nated as  a  lease.  The  common  designation  is  a  figure  of  speech, 
substituting  the  name  of  the  instrument  by  which  it  may  be  con- 
veyed for  the  estate  itself.  An  estate  for  years,  no  matter  for 
how  long  a  term,  is  considered  personal  property,  and  has  none 
of  the  dignity  attached  to  a  freehold,  which  is  an  estate  of  inherit- 
ance, or  a  life  estate.  An  estate  for  years  may  be  created  to 
continue  for  a  much  longer  period  than  a  life-estate,  but  it  is 
nevertheless  regarded  by  law  as  inferior  to  a  life-estate.  Estates 
for  years  are  created  by  a  contract  or  lease,  and  may  be  created  by 

t  Illinois,  Kansas,  and  Maine. 

t  Michigan,  Ohio,  Nebraska,  West  Virginia,  and  Oregon. 


342  REAL  ESTATE 

parol  contract  as  well  as  by  deed,  unless  the  agreement  falls  within 
the  provisions  of  the  Statute  of  Frauds,  which  generally  limits 
leases  which  may  be  created  by  parol  contract  to  leases  for  a 
period  less  than  one  year, 

410.  Future  Estates  may  be  either  estates  in  reversion,  or 
in  remmnder.  These  are  terms  adopted  by  the  common  law  to 
designate  particular  estates  in  land  to  which  the  owner  does  not 
have  the  right  to  immediate  possession,  but  which  he  owns  and  to 
which  he  will  acquire  the  right  to  possession  at  a  future  period. 

If  one  grants  a  life  estate  to  another,  the  property  to  come 
back  to  the  grantor  at  the  end  of  the  life  estate  the  grantor  is 
said  to  have  an  estate  in  reversion,  for  it  reverts  to  him. 

If  one  grants  a  life  estate  to  another,  the  property  to  go  to  a 
third  party  at  the  end  of  the  life  estate,  the  third  party  is  said  to 
have  an  estate  in  remainder,  for  he  gets  what  remains  at  the  end 
of  the  preceding  estate. 

EXAMPLES 

1.  Ames,  who  owns  a  tract  of  land,  known  as  White^cre,  by  deed  grants 
an  estate  in  Whiteacre  to  Bates  for  his  life.  Ames  retains  as  an  estate  in 
reversion  all  the  interest  in  the  land  after  the  death  of  Bates.  Should  Ames 
die  before  Bates,  Ames'  heirs  will  be  entitled  to  receive  the  land  upon  the  death 
of  Bates. 

2.  Call,  owner  of  Greenacre,  by  deed  grants  a  life  estate  to  Dale,  and 
upon  the  death  of  Dale  a  second  life  estate  to  Eagan,  the  remainder  upon 
Eagan's  death  to  go  to  Fuller.  Fuller's  estate  is  a  remainder  in  fee  simple, 
while  Dale  and  Eagan  take  life  estates  in  the  same  land,  Eagan's  right  to  pos- 
session being  postponed  until  Dale's  death. 

Estates  in  remainder  may  be  either  vested  or  contingent.  If 
the  person  to  whom  is  granted  an  estate  in  remainder  is  alive  at 
its  creation  it  is  a  vested  interest,  only  the  enjoyment  and  pos- 
session being  postponed.  If  the  person  who  will  enjoy  the 
remainder  is  unborn,  the  estate  is  contingent. 

It  is  important  to  know  that  contingent  remainders  cannot 
be  created  to  take  effect  at  an  unreasonably  distant  time,  for 
otherwise  restrictions  might  be  placed  upon  property  which  would 
interfere  with  its  use  by  all  future  generations.  Tiie  Rule 
Against  Perpetuities  prevents  this.  It  usually  is  stated  as 
follows:   No  future  interest  in  property  is  valid  unless  it  must 


REAL  ESTATE  343 

by  its  terms  become  a  vested  remainder  within  twenty-one  years 
after  the  death  of  some  designated  person*  living  at  the  time  of 
its  creation.  The  appHcation  of  this  rule  is  extremely  technical 
and  no  attempt  should  ever  be  made  to  restrict  the  use  of  property 
by  creating  contingent  remainders  without  consulting  a  skilful 
lawyer. 

411.  Eminent  Domain.  A  sovereign  state  has  the  right  and 
power  to  take  private  property  for  public  uses  for  the  purpose  of 
promoting  public  welfare.  This  is  usually  done  by  a  legal  process 
known  as  condemnation  proceedings,  in  the  course  of  which  the 
fair  market  value  of  the  land  is  determined  by  the  court.  This 
amount  is  then  paid  by  the  state  to  the  owner  of  the  land  taken, 
and  the  owner  cannot  object  to  the  sale  of  the  land.  Land  for 
railroad  rights  of  way,  telephone  purposes,  and  telegraph  purposes 
is  frequently  secured  in  this  manner,  the  state  granting  these 
companies  the  right  to  exercise  this  power  of  eminent  domain 
because  of  the  public  nature  of  their  business. 

412.  Escheat.  If  no  owner  or  lawful  claimant  of  the  land 
can  be  found,  the  title  to  the  land  so  left  without  a  proprietor 
reverts  (escheats)  to  the  state.  The  procedure  necessary  to 
revest  the  title  in  the  state  is  prescribed  by  statute. 

413.  Police  Power  is  the  power  of  the  state  to  make  reason- 
able rules  and  regulations,  even  though  they  restrict  the  right  of 
an  owner  of  land  as  to  its  use,  for  the  purpose  of  promoting 
public  welfare  and  good  government. 

414.  Easements  are  rights  which  the  owner  of  land  may 
grant  to  another  to  use  the  land  in  a  certain  manner,  but  not  to 
own  it.  For  example,  it  is  customary  among  farmers  for  one 
farmer  to  have  a  right  of  way  across  the  land  of  a  neighbor,  or 
for  the  owners  of  adjoining  buildings  to  erect  a  common  stairway 
and  grant  to  each  other  the  right  to  use  the  entire  stairway 
indiscriminately.  Use  of  another's  land  by  way  of  easement  for 
a  long  period  of  time,  usually  provided  by  statute  to  be  twenty 
years,  raises  a  presumption  that  the  easement  was  once  granted 
and  the  deed  lost,  and  it  will  then  become  a  perpetual  right. 


*  In  some  states,  the  additional  twenty-one  year  period  is  omitted. 


344  REAL  ESTATE 

EXAMPLE 

Williams  and  Barlow  own  adjoining  store  buildings  in  Chicago,  a  common 
stairway  in  William's  building  being  the  only  means  of  access  to  the  upper 
floors  of  both  buildings.  If  Williams  grants  Barlow  the  right  to  use  this 
stairway,  Barlow  has  an  easement. 

415.  How  Property  is  Held.  The  nature  of  ownership  in 
severalty,  in  common,  and  in  joint  tenancy  was  discussed  in  its 
relation  to  personal  property  in  an  earlier  chapter.  (See  Sec.  17.) 
In  addition  to  what  is  there  said  it  may  be  added  that  the  title 
to  real  estate  is  frequently  held  by  a  third  person,  called  a  trustee, 
who  has  no  right  to  use  the  land.  In  such  cases  the  trustee 
merely  holds  the  naked  title  for  the  benefit  of  the  true  owner, 
called  the  beneficiary  of  the  trust,  to  whom  he  must  account  for 
all  the  profits  and  proceeds  of  the  land. 

EXAMPLE 

Ames,  by  his  will,  devises  Blackacre  to  his  brother,  John,  to  hold  as  trus- 
tee for  a  minor  son  of  Ames.  The  minor  son  is  entitled  to  all  the  profits  of  the 
land,  John  merely  holding  the  legal  title  for  his  benefit.  This  manner  of  hold- 
ing land  is  adopted  to  prevent  its  waste  by  improvident  or  irresponsible  per- 
sons, at  the  same  time  allowing  them  to  enjoy  the  benefits  of  ownetship. 


GRAPHIC   REPRESENTATION   OF  ESTATES  IN   LAND 

The  nature  of  these  various  forms  of  estates  in  land  is  one  of 
the  most  difficult  legal  points  for  the  layman  to  grasp.  They 
rest  entirely  upon  the  medieval  conceptions  of  the  nature  of  real 
property,  and  can  be  best  explained  by  adopting  the  medieval 
idea  of  treating  the  title  to  property  as  a  tangible  thing,  beginning 
at  the  present  moment  of  time  and  continuing  until  the  end  of  all 
time,  or  infinity. 

Let  the  following  straight  line  represent  the  title  of  Ames  in 
a  parcel  of  land,  Whiteacre,  which  he  owns  in 

Fee  Simple 
I Whiteacre  —  Ames  in  fee  simple ■  /ingnify') 

This  is  the  greatest  and  highest  estate  known  to  the  law  and 
indicates  that  Ames  controls  both  the  present  and  future  use  of 


REAL  ESTATE  345 

the  land  and  that  it  belongs  absolutely  to  him  and  to  his  heirs,  or 
the  persons  to  whom  he  grants  it,  forever. 

He  may  dispose  of  it  so  as  to  give  his  son,  John,  a 
Life  Estate 


John's  death 


i 
I John  for  life  i Ames  in  reversion , 

thereby  carving  out  of  his  entire  estate  a  lesser  estate  which 
terminates  upon  the  happening  of  a  definitely  stated  event, 
the  death  of  John.  The  part  remaining  after  John's  death  is  a 
reversion,  for  not  being  disposed  of  by  Ames  it  remains  with  him, 
and  he  may  either  further  dispose  of  it  or  keep  it  until  his  death 
when  it  will  pass  to  his  heirs.  It  is  an  estate  infuturo,  and  upon 
John's  death  will  become  an  estate  in  possession. 

Or  Ames  may  instead  dispose  of  his  land  in  such  a  manner  as 
to  create  a 

Remainder 


John's  death 

I John  for  life i         William  in  remainder        . 

He  does  this  by  granting  his  son,  john,  a  life  estate,  the 
remainder  to  go  to  William  and  his  heirs  forever.  Ames  thereby 
disposes  of  his  entire  title,  but  William  does  not  receive  posses- 
sion until  John's  death. 

Or  Ames  may  dispose  of  Whiteacre  in  such  a  way  as  to  create  a 
Joint  Tenancy 


Death  of  all  joint 
tenants  except  one 


K^"     Bates,  Call,  and  Dale 


Survivor 


Bates,  Call  and  Dale  will  own  the  entire  property  as  joint 
tenants,  all  owning  the  same  thing  at  one  and  the  same  time, 
and  on  the  death  of  either  his  share  going  to  the  others,  until 
finally  the  last  survivor  will  own  the  entire  estate  in  fee  simple. 


346 


REAL  ESTATE 


Or  Ames  may  create  a 


Tenancy  in  Common 

Bates 


Call 


Dale 


Bates,  Call  and  Dale,  will  in  that  event  each  own  an  undivided 
one-third  interest  in  Whiteacre,  but,  unlike  an  estate  in  joint 
tenancy,  upon  the  death  of  any  one  his  share  will  go,  not  to  the 
survivors,  but  to  his  own  heirs,  for  the  estate  of  each  is  a  fee  simple 
in  an  individed  one  third  of  the  land. 

Or  Ames  may  rent  a  portion  of  the  land  to  Tupper  for  a 


Term  of  Years 


Lease  to  Tupper  for  5  years 


Ames 


This  is  not  an  estate  of  inheritance,  but  merely  a  right  of  use 
for  a  term  of  years,  and  the  title  continues  vested  in  Ames, 
subject  to  the  outstanding  right  of  Tupper  to  use  the  land. 

Or  Ames  may  create  a 


Trust  Estate 
Small  and  heirs  as  trustees 


Death  of  Arthur 


Arthur  as  beneficiary 


Arthur's  heirs  in  fee  simple        i 


He  may  do  this  by  leaving  Whiteacre  by  his  will  to  Small  and 
his  heirs,  as  trustees,  to  hold  the  land  for  the  use  and  benefit 
of  Arthur  Ames,  and  on  the  death  of  Arthur  Ames,  the  title  to  vest 
forever  in  his  heirs.  Small  and  his  heirs  hold  only  a  naked  legal 
title.  They  hold  this  title  only  during  the  life  of  Arthur  Ames. 
They  have  no  right  to  the  beneficial  use  or  enjoyment  of  the  land. 


CHAPTER  XLVI 
REAL  ESTATE   CONVEYANCES 

416.  How  Title  is  Transferred.  With  the  nature  of  the 
various  estates  in  land  common  in  the  United  States  in  mind, 
the  different  instruments  of  conveyance,  by  means  of  which  these 
estates  may  be  transferred  from  one  owner  to  another,  will  be 
considered.  As  the  estates  themselves  have  their  origin  in  the 
feudal  system,  so  the  instruments  of  conveyance  were  also  taken 
from  the  same  military  age,  and  this  fact  accounts  for  much  of 
the  general  form  and  phraseology  of  these  instruments. 

Title  to  land  may  be  transferred  from  one  owner  to  another 
by  either  (1)  descent,  or  (2)  purchase.  Title  by  descent  is 
acquired  when  the  owner  dies  and  the  estate  of  which  he  was  the 
owner  passes  to  his  heirs.  Title  by  purchase  is  acquired  by 
mecns  of  one  of  the  several  instruments  of  conveyance  in  the 
life-time  of  the  owner. 

417.  Conveyances  of  land  from  one  owner  to  another  are 
made  by  formal  instruments,  the  forms  of  which  are  generally 
provided  by  statute.  The  instrument  by  which  the  absolute 
title  of  a  freehold,  or  estate  of  inheritance,  is  transferred  from  one 
owner  to  another,  is  called  a  deed.  The  conveyance  for  a  term  of 
years  is  called  a  lease,  the  owner  being  designated  as  the  landlord 
and  the  person  receiving  the  leasehold  interest  the  tenant.  Con- 
veyances for  purposes  of  securing  debts,  or  conditional  convey- 
ances, are  called  mortgages  or  trust  deeds,  depending  upon  their 
form,  and  are  more  fully  discussed  in  the  following  chapter. 

418.  Deeds,  as  used  in  commercial  transactions,  are  of  two 
kinds:  (1)  Quitclaim  deeds,  and  (2)  warranty  deeds.  By  means 
of  a  quitclaim  deed,  the  owner  of  land,  called  the  grantor,  relin- 
quishes all  the  estate  which  he  possesses  in  a  parl^icular  tract  of 
land,  substituting  the  person  receiving  the  deed,  called  the 
grantee,  as  the  owner  of  whatever  rights  he  may  have  had.  The 
effect  of  a  quitclaim  deed  is  to  transfer  the  title  which  the  gra-ntor 

347 


348  REAL  ESTATE  CONVEYANCES 

had,  throwing  upon  the  grantee  all  risk  as  to  whether  the  grantor'* 
title  was  perfect  or  defective. 

By  the  warranty  deed,  the  grantor  not  only  conveys  the  desig- 
nated estate  to  the  grantee,  but  further  covenants  and  warrants 
that  he  actually  owns  all  the  estate  which  he  purports  to  convey 
and  will  defend  it  against  the  claims  of  other  persons.  The 
warranty  deed  is  a  much  safer  deed  from  the  standpoint  of  the 
grantee,  for  by  it  not  only  the  grantor,  but  usually  his  heirs,  are 
bound  to  protect  the  ownership  of  the  grantee  and  his  heirs 
forever. 

All  deeds  are  writings  sealed  and  delivered  between  the. 
parties.  The  material  upon  which  they  are  written  is  parch- 
ment or  paper.  They  must  be  made  by  a  party  able  to  contract^ 
and  must  be  founded  upon  some  consideration.  Their  terms 
must  be  set  forth  legally  and  in  an  orderly  fashion.  They  must 
be  free  from  any  erasures  and  interlineations  which  are  not 
explained  in  writing  on  the  face  of  the  deed  itself.  In  some 
states,  signing  by  the  grantor,  and  the  attestation  of  his  signature 
by  one  or  more  witnesses,  and  his  acknowledgment  of  the  instru- 
ment as  his  deed  before  a  notary  public  or  magistrate,  are  neces- 
sary. The  public  recording  of  a  deed  is  not  essential  to  its  Vclid- 
ity,  but  is  designed  to  protect  the  grantee  against  the  claims  of  the 
grantor's  creditors,  and  of  subsequent  bone  fide  purchasers. 

The  grantee  of  a  deed  should  assure  himself : 

1.  That  it  be  in  writing. 

2.  That  the  grantor  is  a  competent  party. 

3.  That  the  estate  to  be  conveyed  be  definitely  described. 

4.  That  a  consideration  be  expressed. 

5.  That  it  be  duly  executed. 

6.  That  it  be  delivered. 

7.  That  it  be  registered  in  a  public  office  to  affect  the  rights 
of  third  persons. 

The  sufficiency  of  the  writing,  the  competency  of  the  parties, 
and  the  adequacy  of  the  consideration,  are  governed  by  the 
principles  which  were  fully  discussed  under  the  subject  of  con- 
tracts.    The  property,  or  estate,  to  be  conveyed  must  be  clearly 


REAL   ESTATE   CONVEYANCES  .      349 

described  in  the  deed,  both  as  to  its  nature  and  extent,  as  well  as 
its  location.  The  congressional  system  of  survey  provides  an 
excellent  method  for  legal  descriptions,  which  may  be  supple- 
mented by  reference  to  town  plats,  or  sub-divisions,  street 
numbers,  water-courses,  monuments,  or  other  points  definitely 
fixed  by  nature  or  by  law,  depending  upon  the  location  of  the  land. 

EXAMPLES 

The  following  are  typical  legal  descriptions  in  deeds: 

The  Southeast  quarter  {SE\)  of  the  Northwest  quarter  ( NW\)  of  Section 
twenty-nine  (29),  Township  thirty-eight  North  (38  iV)  of  range  fourteen  (i?14) 
West  of  the  third  principal  meridian. 

Beginning  at  the  Northeast  corner  of  Lot  Twenty-two  (22)  of  Fuller's  Addi- 
tion to  the  city  of  Lancaster,  as  more  fully  appears  by  the  recorded  plat  thereof, 
thence  west  one  hundred  twenty-two  (122)  feet,  more  or  less,  to  a  certain  stone 
monument,  thence  south  seventy-one  (71)  feet,  thence  east  one  hundred  twenty- 
two  (122)  feet,  more  or  less,  to  the  front  line  of  said  lot,  thence  north  along  the  front 
line  of  said  lot  seventy-one  (71)  feet,  to  the  place  of  beginning;  all  said  land  being 
in  Grant  County,  Wisconsin,  Section  Twenty  (20),  Township  Twenty  (20) 
North  of  Range  Five  West  of  the  fifth  principal  meridian. 

The  last  description  is  said  to  be  "by  metes  and  bounds." 

Execution.  The  due  execution  of  a  deed  includes  the  four 
essentials  of  signing,  sealing,  attestation,  and  acknowledgment. 
A  deed  is  required  to  be  signed  by  the  grantor,  either  in  person 
or  by  an  agent  authorized  under  a  sufhcient  power  of  attorney. 
If  such  an  agent  sign  the  deed,  it  must  appear  both  in  the  body 
of  the  instrument  and  by  the  signature  that  he  signed  it  for, 
and  in  behalf  of,  the  grantor,  and  that  he  was  empowered  to  do 
so;  thus,  James  E.  Smith,  by  E.  A.  Brown,  Atty.  If  the  grantor 
is  an  illiterate  person,  incapable  of  signing  his  own  name,  he  may 
execute  the  deed  by  making  a  cross,  or  other  device,  called  his 
mark,  in  the  presence  of  witnesses. 

Sealing.  The  formality  formerly  attendant  upon  the  sealing 
of  an  instrument  has  been  made  by  statute  somewhat  less  burden- 
some, though  the  majority  of  the  states  still  require  a  seal  in 
some  form  on  instruments  of  conveyance  of  land.  The  seal  need 
not  be  of  any  particular  form  or  material,  so  long  as  it  has  been 
adopted  by  the  grantor  as  his  seal.  The  deed  should  contain  a 
recital  that  the  grantor  has  affixed  his  seal  as  a  further  evidence 
of  his  intention  to  execute  a  sealed  instrument. 


350  REAL   ESTATE   CONVEYANCES 

3n  WBitmSii  WBihntOi  the  parties  of  the  first  part  have  hereunto  set 
their  hands  and  seals  the  day  and  year  first  above  written. 

Signed,  Sealed,  and  Delivered 
in  the  Presence  of  CHARLES  HATHAWAY.    [Seal] 

/.  L.   TALBOTT.  LAURA   HATHAWAY.         [Seal] 

J.  H.  SMITH. 

Attestation.  Witnesses  of  the  signing,  sealing,  and  delivery 
are  sometimes  required  to  sign  a  deed  in  order  to  give  it  a  full 
legal  effect  as  an  instrument  of  conveyance.  Their  function  is  to 
prove  the  signatures  of  the  parties,  and  no  particular  formality 
is  attendant  upon  their  signature.  It  is  only  necessary  that  the 
grantor,  for  whom  they  are  witnesses,  shall  have  acknowledged 
in  their  presence  that  the  signature  on  the  instrument  is  his. 

Acknowledgment.  Every  deed,  as  a  part  of  its  due  execution, 
should  be  acknowledged.  The  grantor  or  grantors  should  appear 
before  some  officer  authorized  by  law  to  take  acknowledgments, 
and  state  that  they  have  signed  and  sealed  the  instrument  with 
full  and  complete  knowledge  and  understanding  of  its  contents. 
If  dower  or  homestead  rights  are  to  be  released,  the  officer  should 
inquire  particularly  if  such  rights  are  waived,  and  some  states 
require  that  the  wife  be  examined  separately  and  apart  from  her 
husband  so  that  no  force  or  coercion  may  be  used  in  procuring 
her  acknowledgment  to  the  deed. 

Notaries  public,  court  officials,  and  justices  of  the  peace,  are 
the  officers  usually  empowered  to  acknowledge  deeds,  and  such 
officer  should  attach  his  certificate  under  his  official  seal  to  the 
deed.  The  objects  of  acknowledgment  are:  (1)  To  admit  the 
deed  to  record;  (2)  to  provide  an  additional  safeguard  against 
fraudulent  conveyances;  and  (3)  to  furnish  a  further  means  of 
identification  of  the  grantor  and  additional  proof  of  the  due 
execution  of  the  instrument  by  him. 

EXAMPLE 

State  of  Wisconsin  )  ^^  JSe  3Jt  i&tmfmbereb.  That  on  this  22d  day  of 
County  of  Calumet )  '  June,  A.  D.  1916,  personally  came  before  me  the  above 
named  John  Harris,  and  Samantha,  his  wife,  to  me 
known  to  be  the  persons  who  executed  the  foregoing  deed,  and  acknowledged  the 
same  to  be  their  own  free  act  and  deed  for  the  use  and  purposes  therein  mentioned. 

WALiTER  WHEELER, 
(Official  Seal)  Notary  Public,  Calumet  County,    Wisconsin. 


REAL  ESTATE  CONVEYANCES  351 

When  the  property  conveyed  consists  of  the  homestead  and 
the  wife  signs  the  deed,  the  statutes  of  some  states*  require  that 
the  acknowledging  officer  shall  certify  that  he  has  satisfied  him- 
self that  the  wife  was  aware  that  she  was  parting  with  her  home- 
stead rights.  In  Illinois  it  is  also  required  that  the  certificate 
shall  also  show  a  distinct  release  of  the  right  of  homestead.  The 
same  doctrine  is  applied  in  some  states  to  the  release  of  dower. 

Delivery.  It  is  essential  to  the  validity  of  a  deed  that  it  be 
delivered  to  the  grantee,  this  delivery  implying  that  the  grantee 
has  by  his  acceptance  of  it  become  bound  by  the  bargain.  The 
delivery  must  be  made  with  the  intention  to  transfer  the  title 
to  the  grantee,  for  if  a  deed  is  stolen  or  obtained  by  fraud,  before 
a  valid  delivery,  it  has  no  efifect  and  there  is  no  transfer  of  title. 
A  deed  is  presumed  to  have  been  delivered  on  the  date  of  its 
execution,  but  the  true  date  of  delivery  may  be  shown  for  the 
purpose  of  establishing  the  time  at  which  the  deed  became  effec- 
tive. When  the  grantor  wishes  to  make  a  conditional  delivery, 
the  deed  may  be  left  with  a  third  party,  to  be  delivered  to  the 
grantee  upon  the  performance  of  the  stipulated  conditions.  This 
is  called  a  delivery  in  escrow,  and  the  third  party,  except  at  his 
own  peril,  cannot  deliver  the  instrument  until  the  conditions  have 
been  complied  with. 

Recording.  The  system  of  recording  titles  is  common  to  all 
states.  It  is  an  admirable  feature  of  our  real  estate  law,  as  it 
gives  to  all  persons  who  have  occasion  to  deal  in  land  reliable 
means  for  ascertaining  all  material  facts  with  regard  to  the  title. 
Deeds  are  recorded  with  a  public  officer,  generally  the  county 
recorder,  or  register  of  deeds,  in  the  county  in  which  the  land  is 
situated.  The  public  officer  notes  on  the  instrument  the  day  and 
hour  of  the  filing,  and  the  instrument  is  then  copied  into  the 
county  records.  This  serves  as  notice  to  the  public  at  large  of 
the  conveyance,  for  the  records  are  open  to  the  public.  The 
original  deed  is  returned  to  the  owner,  and  if  it  be  mislaid  or  lost, 
the  public  record  serves  in  its  stead. 

If  two  deeds  are  in  existence  at  the  same  time,  the  grantee 
of  the  deed  first  recorded  has  prima  facie  evidence  that  he  is  the 


♦Alabama,  Florida,  Kentucky,  Texas,  and  Wyoming. 


352  REAL  ESTATE.  CONVEYANCES 

owner  of  the  property.  His  priority  of  registration  is  of  no  use 
to  him,  however,  if  it  be  proved  that  he  knew  of  the  existence  of 
another  vaHd  deed.  Subsequent  purchasers  who  buy  in  good 
faith  without  knowledge  of  the  unrecorded  instrument  are  pro- 
tected under  the  law  requiring  recording. 

Torrens  Registration.  In  order  to  simplify  land  titles,  and 
eliminate  a  part  of  the  expense  incident  upon  an  examination  of 
the  public  records  of  title  to  lands,  some  of  the  states  have 
adopted  a  system  devised  in  New  Zealand,  known  as  the  Torrens 
System  of  Land  Registration.  It  provides  a  means  by  which 
the  owner  of  land  may  petition  a  court  of  proper  jurisdiction  to 
have  his  land  registered  under  this  system,  and  after  a  careful 
examination  of  the  title,  the  court  issues  a  decree,  or  order, 
stating  the  title  or  interest  of  the  applicant,  which  may  then  be 
registered.  A  certificate  is  issued,  which  shows  the  name  of  the 
owner,  whether  the  owner  is  married  or  unmarried  (unless  a 
corporation  is  owner),  and  if  married,  the  name  of  the  husband 
or  wife;  if  the  owner  is  a  minor  it  states  his  age,  and  if  he  is  under 
any  other  disability,  the  nature  of  the  disability.  The  nature  of 
the  e<;tate,  whether  legal  or  equitable,  the  description  of  the 
premises,  and  all  existing  liens,  mortgages,  incumbrances,  and 
charges  to  which  the  owner's  title  is  subject,  are  also  noted. 
Subsequent  transfers  of  title  can  be  readily  made  by  a  transfer 
of  the  certificate  showing  title,  and  new  certificates  are  then  issued 
to  the  new  owners  without  the  necessity  of  a  further  search  of 
the  records  for  prior  liens. 

The  component  parts  of  a  deed  are: 

1.  Premises.  5.     Conditions. 

2.  Habendum  (to  have).  6.     Covenants. 

3.  Tenendum   (to  hold).  7.     Warranties. 

4.  Reddendum  (reservations). 

The  only  essential  one  of  these  is  the  first,  the  premises.  If 
that  be  included,  a  deed,  however  informal,  will  be  effective  in 
passing  the  title,  provided  of  course  that  it  contains  some  expres- 
sion of  an  intent  to  convey  the  land  described,  and  is  duly  exe- 
cuted and  delivered  as  the  deed  of  the  grantor  to  the  grantee. 


REAL   ESTATE   CONVEYANCES  353 

Premises.  This  should  contain  the  names  of  the  parties,  the 
consideration,  words  of  explanation,  identification  of  parties  by 
residence,  the  description  of  the  property  granted,  with  the 
exceptions  or  reservations,  if  any,  the  words  of  grant,  and  usually 
the  estate  or  quantity  of  ownership. 

419.  Warranty  Deeds.  A  warranty  deed  is  shown  herewith, 
in  sections,  each  section  being  separately  shown  and  discussed. 

Warranty  Deed 
I*remises 

t!ti)iS  3(nbentUrt,  Made  this  lld  day  of  June,  in  the  year  of  our  Lord 
one  thousand  nine  hundred  and  fourteen,  bettoeen  John  Harris  and  Samantha^ 
his  wife,  of  Chilton,  Wisconsin,  parties  of  the  first  part,  and  George  Underwood 
of  Chicago,  Illinois,  party  of  the  second  part. 

WSiitntiflttli,  That  the  said  parties  of  the  first  part,  for  and  in  consideration 
of  the  sum  of  One  Thousand  Dollars,  to  them  in  hand  paid,  by  the  said  party  of  the 
second  part,  the  receipt  whereof  is  hereby  confessed  and  acknowledged,  have  given, 
granted,  bargained,  sold,  remised,  released,  aliened,  conveyed,  and  confirmed,  and 
by  these  presents  do  give,  grant,  bargain,  sell,  remise,  release,  alien,  convey,  and 
confirm  unto  the  said  party  of  the  second  part,  his  heirs  and  assigns  forever,  the 
following  described  real  estate,  situated  in  the  County  of  Calumet  and  State  of 
Wisconsin,  to-wit: 

Lot  One  (1)  of  Smith's  Addition  to  the  City  of  Chilton,  according  to  the  recorded 
plat  thereof, 

ttTogettier  with  all  and  singular,  the  heriditaments  and  appurtenances  thereunto 
belonging,  or  in  anywise  appertaining,  and  all  the  estate,  right,  title,  interest, 
claim,  or  demand  whatsoever  of  the  said  parties  of  the  first  part  either  in  Law  or 
Equity,  either  in  possession  or  expectancy  of,  in  and  to  the  above  bargained  prem- 
ises, and  their  hereditaments  and  appurtenances. 

Habendum  (to  have)  and  Tenedum  (to  hold).  These  clauses 
follow  the  usual  words  "to  have  and  to  hold,"  and  define  the 
quantity  of  interest  or  estate  which  the  grantee  is  to  take  in  the 
lands.  They  are  not  essential  to  the  validity  of  the  deed,  and  in 
the  event  that  they  do  not  agree  with  the  terms  of  the  premises, 
are  secondary  to  the  premises  in  weight.  The  habendum  may 
limit  or  qualify  the  operation  of  the  premises,  as  by  changing 
the  character  of  joint  tenants  to  tenants  in  common.  It  is  the 
proper  place  to  insert  declarations  of  trusts,  or  to  name  the 
grantees  if  their  names  do  not  appear  in  the  premises. 


354  REAL   ESTATE   CONVEYANCES 

The  tenendum  clause  refers  to  the  feudal  system  of  holding 
lands  as  a  grant  from  an  over-lord,  and  has  never  been  of  import- 
ance under  our  law,  though  the  name  and  form  is  still  preserved, 
appearing  in  the  form  of  the  words,  "to  hold." 

Habendtun  et  Tenendum 

tE>0  ^Utit  anlJ  tlTo  ^Olll  the  said  premises  above  bargained  and  de- 
scribed unto  the  said  party  of  the  second  part,  with  the  appurtanances  thereunto 
belonging,  unto  the  said  party  of  the  second  part,  his  heirs  and  assigns,  forever. 

Reddendum.  The  reddendum  clause  contains  the  reserva- 
tions and  exceptions  which  the  grantor  wishes  to  place  in  the 
deed.  Thus  the  grantor  may  reserve  to  himself  the  right  to 
receive  the  rent  from  the  property  for  his  life,  or  any  other  benefit 
issuing  from  the  land  itself,  or  in  fact,  any  part  which  decreases 
the  quality  of  the  estate  conveyed.  Or  the  grantor  may  desire 
to  except  some  part  of  the  quantity  of  the  estate  conveyed  from 
the  description,  and  this  is  called  an  exception,  as  when  the  deed 
describes  the  property  conveyed  and  adds  a  clause  such  as 
"except  the  south  forty  acres  of  the  northwest  quarter." 

Condition.  A  clause  may  be  inserted  in  the  deed  providing 
that  on  the  happening  of  some  event  the  estate  shall  return  to 
the  grantor.  The  condition  may  be  precedent  or  subsequent, 
and  serves  to  revest  the  title  to  the  estate  in  the  grantor  upon  the 
happening  of  the  event. 

EXAMPLES 

1.  Ames  gives  a  deed  to  his  daughter,  Sarah,  to  have  and  to  hold  certain 
property  so  long  as  she  shall  remain  unmarried,  the  property  to  go  to  her  hus- 
band upon  her  marriage.  This  is  a  condition  subsequent,  for  upon  its  happen- 
ing the  title  passes  from  the  grantee. 

2.  Bates  gives  a  deed  to  Call,  describing  certain  property,  and  providing 
that  Call  shall  have  the  title  only  upon  the  condition  that  he  shall  attain  the 
age  of  twenty-five  years.  This  is  a  condition  precedent,  for  until  it  is  per- 
formed, Call  will  receive  no  estate  in  the  lands. 

Covenants  and  Warranties.  By  these  the  grantor,  not  only 
for  himself,  but  for  his  heirs,  warrants  the  grantee  and  his  heirs, 
or  assigns,  to  be  secure  in  the  estate  granted.  If  the  grantor 
covenants  in  behalf  of  himself  and  his  heirs,  they  are  bound  to 
perform  the  agreement  or  pay  damages,  provided  they  have 


REAL  ESTATE  CONVEYANCES  353 

t-eceived  property  from  the  grantor  by  descent,  but  are  not  liable 
beyond  the  amount  of  the  inheritance.  There  are  four  customary 
covenants  in  a  full  warranty  deed.     These  may  be  as  follows: 

3nb  The  said  party  of  the  first  part,  for  his  heirs,  executors,  and  adminis- 
trators, does  covenant,  grant,  bargain  and  agree,  to  and  with  the  said  party  of  the 
second  part,  his  heirs  and  assigns,  that  at  the  time  of  the  ensealing  and  delivery  of 
these  presents.  (1)  He  is  well  seized  of  the  premises  above  conveyed,  as  of  a  good, 
sure,  perfect,  absolute,  and  indefeasible  estate  of  inheritance  in  law,  in  fee  simple, 
and  (2)  had  good  right,  full  power,  and  lawful  authority  to  grant,  bargain,  sell,  and 
convey  the  same  in  manner  and  form  aforesaid,  and  (3),  that  the  same  are  free  and 
clear  from  all  former  and  other  grants,  bargains,  sales,  liens,  taxes,  assessments,, 
and  incumbrances,  of  what  kind  or  nature  soever,  and  (4),  the  above  bargained 
premises,  in  the  quiet  and  peaceable  possession  of  the  said  party  of  the  second  part, 
his  heirs  and  assigns,  against  all  and  every  other  person  or  persons  lawfully 
claiming  or  to  claim  the  whole  or  any  part  thereof,  the  said  party  of  the  first  part 
^hall  and  will  toarrant  anb  foreber  befenb. 

In  the  event  that  the  grantee  or  his  assigns  should  be  ousted 
from  their  possession  they  may  fall  back  on  the  grantor  or  his 
heirs  and  demand  damages  for  their  loss.  In  most  of  the  States 
the  measure  of  damages  is  the  money  paid  for  the  property  with 
interest  (deducting  rents  and  profits)  and  the  legal  cost  of  defend- 
ing the  suit. 

The  so-called  "special  warranty  deed"  warrants  the  grantee 
only  against  other  persons  claiming  title  from  the  grantor,  but 
does  not  protect  the  grantee  against  prior  owners  other  than  the 
immediate  grantor.  This  form  of  warranty  is  accomplished  by 
transposing  the  words  of  the  warranty  clause  to  read  as  follows: 

iSnb  The  said  A.  B.  {grantor)  for  himself,  his  heirs,  executors,  and  admin- 
istrators does  covenant,  grant,  bargain,  and  agree  to  and  with  the  said  party 
of  the  second  part  {grantee)  his  heirs  and  assigns,  that  the  above  bargained  prem- 
ises, in  the  quiet  and  peaceable  possession  of  the  said  party  of  the  second  part, 
his  heirs  and  assigns,  against  all  and  every  person  or  persons  lawfully  claiming 
the  whole  or  any  part  thereof,  by,  through  or  under  him  and  none  other,  he  will 
forever  toarrant  anb  befenb. 

This  form  of  warranty  affords  little  protection  to  the  grantee 
and  is  frequently  made  the  instrument  of  fraud,  an  unsuspecting 
party  assuming  that  he  is  receiving  a  deed  with  full  warranties. 

The  "short  form"  of  warranty  deed  is  a  form  prescribed  by 
statutes  in  the  various  States,  and  contains  merely  the  statement 
that  the  grantor  agrees  to  forever  warrant  and  defend  the  grantee 


356  REAL   ESTATE   CONVEYANCES 

in  the  property  granted,  without  specifying  the  four  warranties. 
Where  "short  form"  deeds  are  prescribed  by  statute  it  is  usually 
provided  that  all  the  warranties  are  implied  in  them. 

420.  Quitclaim  Deeds.  As  previously  stated,  a  quitclaim 
deed  serves  to  transfer  all  the  right,  title,  and  interest  which  the 
grantor  has  in  the  lands  at  the  date  of  its  execution  and  delivery. 
It  differs  from  a  warranty  deed  in  that  it  contains  no  covenants 
warranting  the  title,  so  that  the  grantee  receives  only  such  interest 
as  the  grantor  has,  be  it  much  or  little,  and  the  protection  of 
the  title  against  rival  claimants  is  upon  the  grantee,  who  is  with- 
out remedy  against  the  grantor  should  there  be  a  failure  of  title. 

A  warranty  deed  is  to  be  preferred  to  a  quitclaim  deed,  by  a 
purchaser,  not  alone  on  account  of  its  covenants,  but  also  because 
a  warranty  deed  conveys  both  the  title  to  the  land  described,  and 
any  title  which  the  grantor  may  acquire  afterwards.  For 
example,  if  the  grantor  does  not  own  the  land  described  in  a 
warranty  deed  at  the  time  the  deed  is  delivered,  but  acquires  the 
title  later  by  purchase  or  otherwise,  this  after- acquired  title  is 
immediately  transferred  to  the  grantee  named  in  the  warranty 
deed,  by  force  of  its  terms. 

A  quitclaim  deed  transfers  only  the  title  which  the  grantor 
had  at  the  time  of  its  execution  and  delivery. 

EXAMPLE 

Ames  sells  to  Bates  the  property  Blackacre,  and  gives  a  warranty  deed,  but 
at  the  time  of  the  sale  Ames'  title  was  defective,  another  party  holding  an 
interest  in  it.  Afterwards,  Ames  secures  to  himself  the  outstanding  title 
by  purchase.  It  immediately  is  transferred  to  Bates  by  force  of  the  warranty 
deed  from  Ames  to  Bates.  Had  it  been  a  quitclaim  deed,  however,  by  which 
Ames  originally  sold  the  land  to  Bates,  this  newly  acquired  title  would  not  have 
been  transferred. 

Quitclaim  Deed 

^tli^  3lnbcnturf,  Made  this  22d  day  of  August,  in  the  year  of  our  Lord 
One  Thousand  Nine  Hundred  Sixteen,  between  Charles  H.  Hathaway  and  Laura 
Hathaway,  his  wife,  of  the  City  of  Chicago,  in  the  County  of  Cook,  and  the  State 
of  Illinois,  party  of  the  first  part,  and  Martin  F.  Deale,  of  the  Township  of  Pella, 
in  the  County  of  Ford,  and  State  of  Illinois,  party  of  the  second  part. 

W8iitntiitt\f,  That  for  and  in  consideration  of  the  sum  of  Two  Thousand 
Dollars  in  hand  paid  by  said  party  of  the  second  part,  the  receipt  whereof  is 
hereby  acknowledged,  and  the  said  party  of  the  second  part  forever  released  and 


REAL   ESTATE   CONVEYANCES  357 

discharged  therefrom,  the  said  party  of  the  first  part  has  remised,  released,  sold, 
conveyed,  and  quitclaimed,  and  by  these  Presents  does  remise,  release,  sell,  convey, 
and  ©uitclatm  unto  the  parly  of  the  second  part,  his  heirs  and  assigns  (oreber, 
all  the  right,  title,  interest,  claim  and  demand,  which  said  party  of  the  first  part 
has  in  and  to  the  following  described  lot,  piece,  or  parcel  of  land,  situated  in  the 
County  of  Cook  and  State  of  Illinois,  and  known  and  described  as  follows,  to-wit: 

The  South  East  quarter  (S.E.  i)  of  the  North  West  quarter  {N.W.  i)  of 
Section  twenty-nine  (29),  Township  thirty-eight  north  (38  N.)  of  Range  four- 
teen (R.  14),  East  of  the  third  principal  meridian. 

Co  J^abe  anb  to  ?^olb  the  same,  together  with  all  and  singular  the  appur- 
tenances and  privileges  thereunto  belonging,  or  in  any  wise  thereunto  apper- 
taining; and  all  the  estate,  right,  title,  interest  and  claim  whatever,  of  the  said 
party  of  the  first  part,  either  in  law  or  equity,  to  the  only  proper  use,  benefit,  and 
behoof  of  the  said  party  of  the  second  part,  his  heirs  and  assigns  forever. 

9nb  the  said  party  of  the  first  part  hereby  expressly  waives  and  releases 
any  and  all  right,  benefit,  privilege,  advantage  and  exemption,  under  or  by  virtue 
of  any  and  all  statutes  of  the  State  of  Illinois  providing  for  the  exemption  of 
homesteads  from  sale  on  execution  or  otherwise. 

Jn  Witxitii  "W^itxtol,  the  said  party  of  the  first  part  have  hereunto  set  their 
hands  and  seals  the  day  and  year  first  above  written. 

'  CHA  RLES  H.  HA  THA  WA  Y.     [Seal] 

LAURA  HATHAWAY.  [Seal] 


CHAPTER  XLVII 

REAL  ESTATE   CONVEYANCES  —  Continued 

421.  A  Mortgage  is  a  conveyance  of  a  property  right  as 
security  for  a  debt,  or  other  obligation.  It  transfers  the  title, 
with  a  conditional  clause  providing  that  if  the  debt  be  satisfied, 
the  transfer  shall  be  without  further  effect.  This  conditional 
clause  is  called  the  defeasance  clause.  The  person  giving  the 
mortgage  is  known  as  the  mortgagor,  and  the  one  to  whom  the 
mortgage  is  given  is  called  the  mortgagee.  A  mortgage  is  exe- 
cuted in  the  same  way  as  a  deed.  In  case  of  property  so  held 
that  it  would  be  required  that  a  wife  should  join  in  a  deed  in  ordef 
to  transfer  her  rights  of  dower,  it  is  likewise  essential  that  she 
should  be  made  a  party  to  any  mortgage  thereon,  except  that 
when  a  mortgage  is  given  as  a  part  of  the  purchase  money  in 
another  real  estate  transaction,  the  entire  property  is  bound  by 
the  mortgage  even  without  her  signature. 

Mortgage 

^i)iS(  ^nbcnturt.  Made  this  24th  day  of  August,  in  the  year  of  our 
Lord  One  Thousand  Nine  Hundred  Sixteen,  between  Martin  F.  Deale,  of  the 
Township  of  Pella,  in  the  County  of  Ford,  and  State  of  Illinois,  party  of  the 
first  part,  and  Charles  H.  Hathaway,  of  the  City  of  Chicago,  in  the  County 
of  Cook  and  State  of  Illinois,  party  of  the  second  part: 

liStereas,  The  said  Martin  F.  Deale  is  justly  indebted  to  the  said  party  of 
the  secotid  part  in  the  sum  of  One  Thousand  Dollars,  evidenced  by  one  certain 
promissory  note  of  even  date  herewith,  bearing  6  per  cent  interest  per  annum 
from  date,  and  due  one  year  from  date. 

Jloto,  tCljtreforc,  tftisf  3Jnbenture  l^ttnesiKettj,  That  the  said  party  of  the 
first  part,  for  the  better  securing  the  payment  of  the  money  aforesaid,  with 
interest  thereon,  according  to  the  tenor  and  effect  of  the  said  promissory  note 
above  mentioned,  and  also  in  consideration  of  the  further  sum  of  One  Dollar 
to  him  in  hand  paid  by  the  said  party  of  the  second  part,  at  the  delivery  of  these 
presents,  the  receipt  whereof  is  hereby  acknowledged,  has  granted,  bargained, 
sold,  remised,  released,  conveyed,  aliened,  and  confirmed,  and  by  these  presents 
does  grant,  bargain,  sell,  remise,  release,  convey,  alien,  and  confirm  unto  the  said 
party  of  the  second  part,  and  to  his  heirs  and  assigns  forever  all  the  following 

358 


REAL   ESTATE   CONVEYANCES  359 

described  lot,  piece  or  parcel  of  land,  together  with  all  the  rents,  issties,  and  profits 
thereof,  situate  in  the  City  of  Chicago,  County  of  Cook,  and  State  of  Illinois, 
and  known  and  described  as  follows,  to-wit: 

The  South  East  quarter  {S.E.  x)  of  the  North  West  quarter  (N.W.  i)  of 
Section  tivejity-nine  (29),  Township  thirty-eight  north  (38  N.),  of  Range  four- 
teen {R  14),  East  of  the  third  principal  meridian. 

tEo  %abe  anb  to  ll^olti  the  same,  together  with  all  and  singular  the  tenements, 
hereditaments,  privileges  and  appurtenances  thereunto  belonging,  or  in  any  wise 
appertaining;  and  also  all  the  estate,  interest,  and  claim  whatsoever,  in  law  as 
well  as  in  equity,  which  the  said  party  of  the  first  part  has  in  and  to  the  premises 
hereby  conveyed  unto  the  said  party  of  the  second  part,  his  heirs  and  assigns,  and 
to  their  only  proper  use,  benefit  and  behoof  forever .       ^ 

^robibeb,  altoapsc.  And  these  presents  are  upon  this  express  condition, 
that  if  the  said  parly  of  the  first  part,  his  heirs,  executors,  administrators,  or 
assigns,  shall  well  and  truly  pay,  or  cause  to  be  paid,  to  the  said  party  of  the 
second  part,  his  heirs,  executors,  administrators,  or  assigns,  the  aforesaid  sum 
of  money,  with  interest  thereon,  at  the  time  and  in  the  manner  specified  in  the 
above  mentioned  promissory  note,  according  to  the  true  intent  and  meaning 
thereof,  then  and  in  that  case  these  presents  and  everything  herein  expressed, 
shall  be  absolutely  null  and  void. 

3nlJ  in  ConSiberatton  of  the  money  loaned  as  aforesaid  to  the  said  party 
of  the  first  pari,  and  in  order  to  create  afizst  lien  and  incumbrance  on  said  premises 
under  this  mortgage,  for  the  purposes  aforesaid,  and  to  carry  out  the  foregoing 
specific  application  of  the  proceeds  of  any  sale  that  may  be  made  by  virtue  hereof, 
the  said  party  of  the  first  part  does  hereby  release  and  waive  all  right  under,  and 
benefit  of,  the  exemption  and  homestead  laws  of  the  State  of  Illinois,  in  and  to 
the  lands  and  premises  aforesaid,  and  the  proceeds  of  sale  thereof,  and  agrees 
to  surrender  up  possession  thereof  to  the  purchaser  or  purchasers  at  such  sale,  or 
to  any  receiver  that  may  be  appointed  by  the  court,  peaceably  on  demand. 
(Here  insert  the  same  covenants  as  in  Warranty  Deed.) 

3n  Witntii  l^ereof.  The  said  party  of  the  first  part  has  hereunto  set  his 
hand  and  seal  the  day  and  year  first  above  written. 

MARTIN  F.  DEALE.     [Seal] 

Additions  frequently  made  to  the  above  form  of  mortgage  are 
clauses  providing,  (1)  that  if  the  mortgagor  fails  to  pay  any 
installment  of  interest  when  it  becomes  due,  the  mortgagee  may 
declare  the  whole  debt  then  due  and  payable;  (2),  that  the 
mortgagor  is  required  to  keep  the  building  insured  in  favor  of 
the  mortgagee  to  the  extent  of  his  interest,  and  that  upon  the 
failure  of  the  mortgagor  to  insure  the  building  the  mortgagee  may 
do  so  and  charge  the  expense  on  the  mortgage  against  the  mort- 
gagor; and  (3)  that  the  mortgagor  must  pay  all  taxes  and  assess- 
ments against  the  property,  and  that  if  he  does  not  the  mortgagee 


360  REAL   ESTATE   CONVEYANCES 

will  have  the  same  rights  as  in  the  case  of  insurance.  These  three 
clauses  are  popularly  known  as  the  "Option,"  "Insurance," 
and  "Tax"  clauses. 

422.  Equity  of  Redemption  is  the  right  of  the  mortgagor  to 
receive  his  property  again  upon  the  payment  or  tender  of  the  full 
amount  of  the  debt,  including  interest,  at  the  time  it  becomes  due, 
or  thereafter  as  provided  by  law.  This  equity  of  redemption  is  a 
property  right  which  the  mortgagor  may  sell  as  any  other  prop- 
erty. It  is  generally  provided  that  the  mortgagor,  or  his  repre- 
sentative, may  exercise  this  right  for  a  considerable  period  after 
the  debt  has  become  due  and  payable,  or  even  after  the  mortgagee 
has  taken  legal  proceedings  to  foreclose  the  mortgage.  This 
period  during  which  the  equity  of  redemption  may  be  exercised 
varies  in  the  several  states,  the  usual  provision  being  that  it  is 
not  barred  until  a  year  has  elapsed  after  the  signing  of  a  judgment 
of  foreclosure. 

EXAMPLES 

1.  A  borrows  $5000  on  a  piece  of  land,  which  he  is  to  repay  in  one  year, 
giving  a  mortgage  to  B  as  security  for  the  loan.  At  the  end  of  the  year  he  is 
unable  to  repay  the  money,  and  B  claims  title  to  the  property  under  the 
mortgage.  Nine  months  later  A  tenders  B  the  sum  of  $5000  with  interest 
in  full  and  all  costs  incurred  by  B.  B  is  compelled  to  receive  this  money  and 
relinquish  all  claim  in  the  property  to  A. 

2.  A  gives  B  a  warranty  deed  to  his  house  and  lot  to  secure  the  payment 
of  a  debt  due  in  one  year.  At  the  end  of  one  year  A  is  unable  to  pay  the  debt, 
and  B  claims  the  land.  A  has  the  right  to  go  before  a  court  of  equity  at  any 
time  within  the  statutory  period,  explain  the  transaction,  prove  that  the 
deed  was  intended  only  as  a  mortgage,  tender  the  amount  of  the  debt  with 
interest,  and  recover  title  to  the  property. 

423.  Sale  of  the  Mortgage.  The  sale  of  the  interest  of  the 
mortgagee  is  accompished  by  a  deed  of  assignment  of  the  mort- 
gage, which  may  be  in  the  following  form. 

Assignment  of  a  Mortgage 

ilnotD  ^U  iWcn  t>P  ^l)tfit  l^VeStntSi,  That  I,  Chas.  N.  Holmes, 
of  the  City  of  Peoria,  in  the  State  of  Illinois,  the  mortgagee  named  in  a  certain 
mortgage  deed,  given  by  Edgar  P.  Farr,  of  Sioux  City,  in  the  State  of  Iowa,  to  said 
Chas.  N.  Holmes,  to  secure  the  payment  of  Four  Hundred  Dollars,  dated  the 
8th  day  of  September,  A.  D.  1916.  and  recorded  in  the  Recorder's  Office  of  Peoria 


REAL   ESTATE   CONVEYANCES  361 

County,  in  the  State  of  Illinois,  in  Book  N  of  mortgages,  page  326,  in  consider- 
ation of  the  sum  of  Four  Hundred  and  Twenty  Dollars  to  me  paid  by  Albert  A. 
Blair,  of  Chatsworth,  in  the  State  of  Illinois,  the  receipt  whereof  is  hereby  acknowl- 
edged, do  hereby  sell,  assign,  transfer,  set  over,  and  convey  unto  said  Albert  A. 
Blair  and  his  heirs  and  assigns,  said  mortgage  deed,  the  real  estate  thereby  con- 
veyed, and  the  promissory  note,  debt  and  claim  thereby  secured,  and  the  covenants 
therein  contained. 

tlTo  ?|abc  anb  to  J^olb  the  same  to  him,  the  said  Albert  A.  Blair,  and  his 
heirs  and  assigns,  to  his  and  their  use  and  behoof  forever ;  subject,  nevertheless, 
to  the  conditions  therein  contained,  and  to  redemption  according  to  law. 

Sn  Witntii  W\itvtiil,  the  said  party  of  the  first  part  has  hereunto  set  his  hand 
and  seal  the  day  and  year  first  above  written. 

CHARLES  N.  HOLMES.     [Seal] 

A  formal  assignment  similar  to  the  above  form  is  considered 
preferable,  yet  the  mere  indorsement  and  transfer  of  the  notes 
secured  by  the  mortgage  carries  with  it  all  the  rights  of  the  mort- 
gagee against  the  land. 

424.  Second  Mortgage.  An  owner  of  property  may 
mortgage  it  as  often  as  he  can  find  a  mortgagee  willing  to  accept 
a  mortgage.  These  mortgages  have  preference  in  the  order  in 
which  they  were  given.  If  the  entire  property  is  required  to 
satisfy  the  debt  which  the  first  mortgage  was  given  to  secure,  the 
subsequent  mortgagees  will  receive  nothing.  The  payment  of 
the  first  mortgage  advances  the  second  to  first  place  as  a  claim 
against  the  property  mortgaged.  The  second  mortgagee  may 
also  purchase  the  first  mortgage,  and  merge  the  two  into  one 
obligation,  thus  protecting  his  own  interest,  for  the  probability 
is  strong  that  the  property  will  bring  much  less  than  its  real 
worth  when  foreclosed  by  the  first  mortgagee,  and  leave  the 
second  mortgagee  remediless. 

425.  Remedies  of  Mortgagee.  A  mortgage  is  drawn  to 
secure  the  payment  of  a  debt,  or  the  performance  of  some  obli- 
gation. This  obligation  is  usually  represented  by  a  note  which 
the  mortgagor  has  agreed  to  pay,  and  which  is  fully  described  in 
the  mortgage.  Upon  the  non-payment  of  this  note  two  distinct 
remedies  are  open  to  the  inortgagee  who  holds  the  notes  and  the 
mortgage.  He  may  sue  upon  the  note,  in  which  event  he  will 
secure  a  personal  judgment  against  the  mortgagor,  which  will 
become   a  lien  on  all  property  not  exempt;  or  he  may  foreclose 


362  REAL   ESTATE  CONVEYANCES 

the  mortgage,  which  is  the  legal  procedure  by  which  the  par- 
ticular property  described  in  the  mortgage  is  subjected  to  the 
satisfaction  of  the  debt.  Foreclosure  is  accomplished  by  a  suit 
in  a  court  of  equity,  which  will  decree  that  the  property  shall  be 
sold  to  the  highest  bidder,  to  satisfy  the  debt,  and  that  any  sur- 
plus shall  be  paid  over  to  the  owners  of  the  equity  of  redemption. 
It  is  usually  also  decreed  that  the  mortgagee  may  have  a  personal 
judgment  against  the  mortgagor  on  the  notes  for  any  deficiency 
in  the  amount  realized  from  the  sale. 

EXAMPLE 

A  owns  property  worth  $10,000  which  is  mortgaged  to  B  for  $4000  on  a  first 
mortgage.  A  offers  C  a  second  mortgage  on  the  same  property  for  a  loan  of 
$1000.  This  looks  safe,  but  if  C  is  cautious  he  will  not  take  the  second  mort- 
gage unless  he  can  also  buy  the  first  mortgage  or  has  $4000  on  hand  with  which 
he  can  pay  off  the  first  mortgage  when  due,  if  necessary,  and  prevent  fore- 
closure. For  under  the  hammer  the  prop^erty  might  not  be  bid  in  for  more 
than  the  §4000  due  on  the  first  mortgage  and  this  would  leave  C  loser. 

426.  Purchasers  of  Equities  of  Redemption  must  be  espe- 
cially cautious  to  notice  the  form  of  the  deed  by  which  they  receive 
their  conveyance.  .  One  form  (the  usual  form)  is  for  the  grantor, 
who  holds  the  equity  of  redemption,  to  deed  the  property,  describ- 
ing it  as  "subject  to  a  certain  mortgage  (describing  it)."  By 
the  other  forms  the  following  words  are  also  added:  "which  the 
grantee  agrees  to  assume  and  pay."  There  is  a  vast  difference 
in  the  legal  meaning  of  these  two  forms.  In  the  former,  if  the 
sale  of  the  premises  does  not  produce  enough  to  pay  the  mortgage 
debt,  no  personal  liability  rests  upon  the  purchaser.  In  the 
latter  case,  a  judgment  may  be  secured  against  the  purchaser  of 
the  equity  of  redemption  for  any  deficiency  in  the  payment  of 
the  debt  secured  by  the  mortgage,  for  by  the  acceptance  of  the 
deed  he  has  agreed  to  pay  it. 

427.  Recording  and  Discharging  Mortgages.  As  soon  as  the 
mortgage  is  delivered  to  the  mortgagee  he  should  immediately 
record  it  with  the  proper  county  officer.  This  protects  him 
against  all  claimants  who  may  thereafter  acquire  any  interest  in 
the  property.  If  he  should  fail  to  record  the  mortgage,  and 
others  should  acquire  interests  in  the  property  in  ignorance  of  the 
mortgage,  their  interests  might  become  superior  to  his. 


REAL   ESTATE   CONVEYANCES  363 

When  a  mortgage  is  paid  it  should  be  discharged  of  record, 
so  that  the  mortgagor's  title  to  the  premises  may  again  be  clear. 
This  may  be  done  by  a  personal  discharge  on  the  margin  of  the 
record  by  the  mortgagee  in  the  presence  of  the  county  officer  who 
is  custodian  of  the  records,  or  when  this  is  impracticable,  it  may 
be  done  by  a  release  deed,  which  is  acknowledged  and  recorded 
in  the  same  manner  as  other  deeds. 

Release  Deed 

llnotD  ^U  iWen  tip  (Efjeie  ^regent*.  That  I,  Charles  H.  Hathaway, 
of  the  County  of  Cook  and  State  of  Illinois,  for  and  in  consideration  of  One 
Dollar,  and  for  other  good  and  valuable  considerations,  the  receipt  whereof  is 
hereby  confessed,  do  hereby  remise,  convey,  release,  and  quitclaim  unto  Martin  F. 
Deale,  of  the  County  of  Ford  and  State  of  Illinois,  all  the  right,  title,  interest, 
claim,  or  demand  whatsoever  I  may  have  acquired  in,  through  or  by  a  certain  mort- 
gage deed  bearing  date  the  2Ath  day  of  August,  A.  D.  1916,  and  recorded  in  the 
Recorder's  office  of  Cook  County,  in  the  State  of  Illinois,  in  Book  M  of  Mortgages, 
page  187,  to  the  premises  therein  described,  as  follows,  to-wit: 

The  South  East  quarter  {S.E.  J)  of  the  North  West  quarter  {N.W.  s)  of 
Section  twenty-nine  (29),  Township  thirty-eight  north  (38  N.)  of  Range  four- 
teen {R.  14),  East  of  the  third  principal  meridian. 

Together  with  all  the  appurtenances  and  privileges  thereunto  belonging  or 
appertaining, 

W&itntii  my  hand  and  seal  this  first  day  of  September,  A.  D.  1916. 

CHA  RLES  H.  HA  THA  WA  Y.     [Seal] 

The  law  does  not  impose  upon  the  mortgagee  the  duty  of 
preparing  this  release,  but  it  does  impose  upon  him  the  duty  of 
executing  it  when  it  is  presented  to  him,  together  with  his  reason- 
able expenses  for  so  doing,  and  in  many  States  he  is  liable  to  heavy 
damages  for  a  wrongful  refusal. 

428.  Trust  Deeds.  In  a  trust  deed  the  owner  of  property 
conveys  title  to  a  third  person,  called  the  trustee,  who  takes  the 
naked  title  for  the  benefit  of  the  creditor.  Then  the  creditor, 
also  called  the  beneficiary,  may  sell  the  notes  which  represent 
the  debt  without  removing  title  from  the  trustee,  who  holds  it 
for  the  benefit  of  all  parties  among  whom  title  is  distributed. 
The  trust  deed  is  preferred  to  the  mortgage  when  the  debt  secured 
amounts  to  a  large  sum,  which  it  is  desired  to  distribute  among 
several  creditors,  each  of  whom  advances  a  small  part  of  the  total 
debt  secured  by  the  trust  deed  and  receives  one  of  the  notes 


364  REAL  ESTATE  CONVEYANCES 

secured  by  the  deed.  The  effect  of  a  trust  deed  is  the  same  as 
that  of  a  mortgage.  It  differs  from  a  mortgage  only  in  the 
method  of  handUng  the  transaction.  The  owner  of  the  land 
conveys  the  property  to  the  trustee  to  hold  until  the  debt  which 
it  is  given  to  secure  is  paid,  with  authority  to  foreclose  the  deed 
upon  non-payment  of  the  debt  and  distribute  the  proceeds  among 
the  holders  of  the  notes. 

429.  Land  Contract.  When  an  agreement  is  made  to  pur- 
chase land,  the  agreement  is  usually  evidenced  by  a  contract, 
which  must  be  in  writing  to  conform  to  the  requirements  of  the 
Statute  of  Frauds.  This  contract,  it  will  be  observ^ed,  contains, 
in  addition  to  the  essential  features  of  the  agreement,  a  provision 
that  the  seller  is  to  furnish  to  the  purchaser  a  complete  abstract 
of  title  (see  next  section)  showing  a  clear  title  in  the  seller,  and 
that  the  purchaser  is  to  have  a  certain  length  of  time  in  which  to 
examine  it.  When  the  title  has  been  found  perfect,  the  sale  is 
completed  by  paying  over  the  money  and  receiving  a  deed,  or 
complying  with  any  other  provisions  in  the  contract.  It  will 
thus  be  seen  that  one  office  of  the  land  contract  is  to  cover 
the  period  between  the  time  of  the  agreement  and  such  time  as 
the  purchaser  can  satisfy  himself  that  the  title  is  good.  Another 
function  of  the  land  contract  is  to  enable  a  purchaser  to  acquire  a 
right  to  possession  of  property  on  a  small  cash  payment,  agreeing 
to  pay  the  bulk  of  the  purchase  price  at  a  later  date,  when  he  is 
to  receive  the  deed.  This  kind  of  a  contract  is  frequently  used 
instead  of  executing  a  mortgage  for  unpaid  purchase  money. 

One  distinctive  feature  of  land  contracts  is  that  a  land 
contract  may  be  specifically  enforced  in  a  court  of  equity  if  the 
wronged  party  prefers  this  procedure  to  bringing  a  suit  for  dam- 
ages for  its  breach.  The  purchaser  may  be  compelled  to  complete 
the  purchase  and  receive  the  title,  or  the  seller  mav  be  compelled 
to  convey  the  land  which  he  had  agreed  to  sell. 

Land  Contract 

tlu^iSi  iWemoranbum  IMitntmti),  That  Charles  H.  Hathaway 
hereby  agrees  to  sell,  and  Martin  F.  Deale  agrees  to  purchase  at  the  price  of 
Two  Thousand  Dollars  the  following  described  real  estate,  situated  in  Cook 
County,  Illinois:  The  South  East  quarter  {S.E.  i)  of  the  North  West  quarter 
(N.W.  i)  of  Section  twenty-nine   (29),    Township  thirty-eight  north    (38  N.), 


REAL   ESTATE   CONVEYANCES  365 

of  Range  fourteen  (R.  14),  East  of  the  third  principal  meridian.  Subject  to 
(1)  existing  leases,  the  purchaser  to  be  entitled  to  the  rents,  if  any,  from  the  time 
of  delivery  of  Deed;  (2)  all  taxes  and  assessments  levied  after  the  year  1916; 
(3)  any  unpaid  special  taxes  or  assessments  levied  for  improvements  not  yet  made. 

ftaib  'Sj^uvtljaitv  has  paid  One  Hundred  Dollars  as  earnest  money,  to  be 
applied  on  said  purchase  when  consummated,  and  agrees  to  pay,  within  five 
days  after  the  title  has  been  examined  and  found  good,  the  further  sum  of  Nine 
Hundred  Dollars,  at  the  office  of  Charles  H.  Hathaway,  Chicago,  provided  a 
good  and  sufficient  full  covenant  Warranty  Deed,  conveying  to  said  purchaser  a 
good  title  to  said  premises  {subject  as  aforesaid B),  shall  then  be  ready  for  delivery. 
The  balance  to  be  paid  as  follows:  One  Thousand  Dollars  in  one  year,  with 
interest  from  August  24:th,  at  the  rate  of  6  per  cent  per  annum,  payable  annually, 
to  be  secured  by  notes  and  mortgage,  of  even  date  herewith,  on  said  premises.  A 
complete  Abstract  of  Title,  or  merchantable  copy,  to  be  furnished,  within  a 
reasonable  time,  with  a  continuation  thereof  brought  down  to  this  date.  In  case 
the  title,  upon  examination,  is  found  materially  defective,  within  ten  days  after 
said  Abstract  is  furnished,  then,  unless  the  material  defects  be  cured  within  sixty 
days  after  written  notice  thereof,  the  said  earnest  money  shall  be  refunded,  arid  this 
contract  to  become  inoperative. 

Should  said  purchaser  fail  to  perform  this  contract  promptly  on  his  part, 
at  the  time  and  in  the  manner  herein  specified,  the  earnest  money  paid  as  above 
shall,  at  the  option  of  the  vendor,  be  forfeited  as  liquidated  damages,  including 
commissions  payable  by  vendor,  and  this  contract  shall  be  and  become  null  and 
void.      Time  is  of  the  essence  of  this  contract,  and  of  all  the  conditions  thereof. 

tE\)li  Contract  and  earnest  money  shall  be  held  by  J.  L.  Talbot,  for  the 
mutual  benefit  of  the  parties  hereto. 

Jn  ^titimonv  l^ereof,  said  parties  hereunto  set  their  hands,  this  22d 
day  of  August,  A.  D.  1916. 

CHARLES  H.  HATHAWAY. 
MARTIN  F.  DEALE. 

430.  Abstract  of  Title.  This  is  a  brief  summary  of  the 
records  of  title  relating  to  any  particular  piece  of  real  estate.  It 
is  prepared  by  persons  skilled  in  the  matter,  who  have  access  to 
the  public  records,  or  who  have  a  complete  set  of  duplicate  records 
of  all  property  in  a  particular  locality.  Only  the  essential  feat- 
ures of  the  history  of  the  property  and  conveyances  relating  to  it 
are  given,  generally  dating  back  to  the  time  when  the  government 
issued  a  patent  to  it,  but  if  there  are  any  defects  in  a  conveyance, 
they  are  noted.  Liens,  including  judgments,  tax  sales,  and  all 
facts  of  record  having  a  bearing  on  the  title  to  the  property,  are 
noted  for  the  inspection  of  the  examining  attorney.  An  exam- 
ination of  this  abstract  of  title  will  serve  to  disclose  defects  in  the 
title  to  property. 


366  REAL  ESTATE  CONVEYANCES 

431.  Guaranty  Policies  are  frequently  issued  by  responsible 
corporations  which  guarantee  the  title  to  be  clear  up  to  and 
including  a  certain  date,  after  which  time  additional  facts  of  record 
may  be  made  by  a  continuation  of  the  abstract.  These  policies 
are  of  value  in  assuring  purchasers  of  the  chain  of  title,  and 
against  any  possible  remote  claim  which  may  be  raised.  They 
also  serve  to  simplify  the  matter  of  examination  of  abstracts,  and 
relieve  the  buyer  from  anxiety  concerning  errors  and  oversights 
which  the  average  attorney  may  make  in  inspecting  a  title. 
They  are  in  common  use  in  the  larger  cities. 


CHAPTER  XLVIII 

REAL   ESTATE   CONVEYANCES  —  Continued 
LEASES 

432.  Landlord  and  Tenant.  The  relation  of  landlord  and 
tenant  is  created  by  an  agreement  wherein  the  landlord  conveys 
an  interest  in  real  estate,  which  interest  is  less  than  a  freehold 
estate,  to  another  person,  called  the  tenant,  who  is  to  use  and  hold 
the  land,  building,  or  room  for  a  term  of  years.  This  agreement  is 
called  a  lease  and  may  be  made  orally  or  in  writing,  though  most 
states  now  provide  that  all  leases  for  a  period  longer  than  one 
year  must  be  in  writing.  The  compensation,  whether  in  money 
or  produce,  is  called  the  rent. 

433.  Kinds  of  Tenancies.  The  principal  classes  of  tenancies 
are  estates  for  years,  tenancies  from  year  to  year,  tenancies  at  will, 
and  tenancies  at  sufferance.  A  lease  for  a  definite  time,  as  six 
months,  two  years,  or  ninety-nine  years,  conveys  a  tenancy  for 
years.  If  after  the  term  of  the  lease  expires,  the  tenant  continues 
to  occupy  the  premises  without  objection  from  the  landlord,  he 
has  a  tenancy  from  year  to  year,  (or  month  to  month,  depending  on 
the  term  of  his  original  lease)  and  his  duties  continue  to  be  the 
same  as  they  were  under  the  written  lease.  He  can  only  be 
removed  from  possession  at  the  end  of  a  year,  or  month,  as  the  case 
may  be.  A  tenancy  which  may  be  terminated  by  either  party 
at  pleasure  is  a  tenancy  at  will,  while  a  tenancy  at  sufferance 
exists  when  one  who  has  originally  come  into  possession  of  land 
lawfully  holds  possession  without  right  or  permission  by  the 
landlord  after  the  expiration  of  his  term. 

Since  these  various  tenancies  are  regulated  by  statutes  or 
judicial  decision,  the  student  should  consult  the  particular  laws 
of  his  own  state  when  questions  arise  as  to  their  termination  or 
creation. 

434.  A  Lease  is  a  contract  for  an  interest  in  lands,  and  as 
previously  noted  is  generally  required  to  be  in  writing  when  made 

367 


368 


REAL  ESTATE   CONVEYANCES 

Lease 


XLb}p  "ffnbenture, 

0<_. 


-rm .pafty  of  tbt  Mcood  part. 

of  the  party  cA  the  socoDd  part. 


TIIIlitnCS0Ctb,  That  ttw  party  o(  Ibo  first  part,  in  conaideraUoa  of  tha 

-forth,  ^^^^^y,  ti^fM  Presents,  laase  to  tb« party  of  tlie  second  part,  the  toWo^log  described  propertr.  to-wit: 


its.  jaase  to  tb« party  of  tlie  second  part,  the  foIIowLnr  described  property,  to-wit; 


.coonty  o£j::^^:«^r^::^i. 


tCO  t^e  and  to  1}0l&  tbe  Same  To  Hw  party  ot  tha  socmd  ^fn.  from  tlie. 
_  H0-=.,  lo 


JOl 


as  follows,  to-wit' — 


,  190-71—     Aiid  Um  partj  of  the  cccoad  purt.  in  coadderattoD  of  tb«  I««slQg  tb» 

I  aad  agrcM  witb  tb«  puty  of  Jb«  fint  part  to  par  U)«  party  of  tba  first  part,  at 

Vj-'^%!!6l'±f^:/-<^.^.^!^^L^^i^^^^  for  tbe  nme.  th«  cum  o< 

rr — Dollars,  pojabt* 


Bn6  tbe  party  ot  tbe  Second  part  Corenanti  with  th»  party  of  th«  flr«t  part,  that  at  the  expiration  of 
the  term  of.  this  IeaM-=-he-^wUl  jrield  up  tbe  premiaes  tath*  partj  of  tlie  flnt  part,  without  farther  notice,  in  aa  food 
coodition  aa  when  the  aame  were  entered  spon  by  the  party  of  the  aecond  part,  loaa  fay  fire  ot  inerltahle  accident  and 
ordinary  wear  excepted.  A 

It  id  /Uttber  BflreeO  B7  the  party  of  the  Mcond  part,  that  neither— ha-  nnr-TC^^^^Jegal  reprca»t» 
tlvea  wilt  underlet  aaid  premJeaa  or  any  put  tbareof,  or  aasjgn  thla  teaee  iritbout  tbe  written  aasent  of  tbe  party  of  the  Ant 
part  flrat  bad  thereto. 

find  It  Is  f  Urtber  £; preSSly  B^reed  Between  the  partiea  hereto,  that  if  default  ahall  be  made  la  the 
payment  of  the  rent  abova  reserred,  or  any  part  thereof,  or  any  of  the  covenaDta  or  agreejjlenta  herein  contained  to  be  kept 
by  tbe  party  of  tbe  lecood  part,  it  ahall  be  lawful  for  tbe  party  of  the  first  part  or^i^S^^^tfed^^Oegal  repreeentatiTcs,  into 
and  apon  said  premisee  or  any  part  thereof,  either  with  or  without  prooeea  of  law,  to  re-enter  and  re-poeeees  tbe  lame  at  the 
«]«ction  of  the  party  of  the  first  part,  and  to  distrain  for  any  rent  that  may  be  doe  thereon  upon  any  property  belonging  to 
tbe  party  of  tbe  second  part.  And  in  order  to  enforce  a  forfeiture  for  non-payment  of  rent  it  sh&U  not  be  necessary  to  malie 
a  demand  on  the  same  day  the  rent  shall  become  due,  but  a  failure  to  pay  the  same  at  the  place  aforesaid  or  a  demand  and 
*  refusal  to  pay  on  the  same  day,  or  at  any  time  on  any  subaequent  day,  shelve  sufBcient;  and  after  •och  default  $haU  be 
made,  the  party  of  the  second  part  and  all  pereoos  In  poMession  uodef::S^P'lf:?;ft-r<hall  be  deemed  guilty  of  a  forcibte 
detainer  of  said  premises  under  tbe  eutute. 

and  It  td  f  nrtbe^openante&  and  Boteed  Between  the  1 


^€^pL£^ 


TlM  covensQts  benio  aliall  fxtand  to  and  ba  binding  upon  tha  ttetrs,  axacnton  aad  admtnlstraton  of  tlM  partisa  t» 
tbis  Lease. 

HElttneBS  tbe  t>an6S  anO  Seals  ot  tlw  putias  afonsald.  th«  day  and  year  Snt  abora  written. 


REAL   ESTATE   CONVEYANCES  369 

.1 
for  a  period  longer  than  one  year.     In  some  states,  by  statute, 

this  limit  is  extended  to  three  years.  By  common  law  the  lease 
need  not  be  sealed;  but  if  by  statute  it  must  be  recorded,  it 
^s  required  to  be  both  sealed  and  acknowledged.  In  order  to 
protect  the  tenant  in  the  enjoyment  of  a  long  lease  many  states 
'require  it  to  be  recorded.  In  Connecticut,  Mississippi,  Oregon, 
Rhode  Island,  South  Carolina,  Tennessee,  and  Vermont,  if  leases 
are  given  for  more  than  one  year,  they  should  be  recorded.  In 
Maine,  Maryland,  Massachusetts,  and  New  Hampshire,  leases 
ifor  seven  years  or  longer  should  be  recorded.  In  Texas  all  leases 
•should  be  recorded.  The  lease  should  be  signed  by  both  parties, 
\nd  it  should  be  made  in  duplicate,  each  party  retaining  a  copy. 

435.  Parts  of  a  Lease.  The  words  usually  used  in  the  grant- 
ing clause  are  "demise  and  lease,"  but  these  exact  words  are  not 
necessary.  The  premises  should  be  so  described  that  they  can  be 
identified  with  certainty.  The  length  of  the  lease  is  usually  a 
matter  of  agreement,  and  may  be  as  long  as  the  parties  choose, 
except  that  the  landlord  cannot  grant  a  greater  estate  than  he 
owns.  In  large  cities  a  lease  for  ninety-nine  years,  or  even  longer, 
is  not  an  uncommon  thing.  In  such  leases,  the  rental  is  usually 
agreed  upon  for  a  shorter  term  of  years;  and  at  the  end  of  this 
time  a  revaluation  of  the  property  is  made  according  to  some 
plan  agreed  upon  in  the  contract,  and  the  amount  of  the  rental 
for  the  next  period  determined.  Such  leasehold  interests  are 
often  very  valuable,  because  the  price  of  real  estate  may  rise 
considerably  before  the  time  of  revaluation  comes  around. 

436.  The  Rent.  The  amount  of  rent  is  usually  agreed  upon 
in  advance,  but  it  may  be  left  for  future  determination  according 
to  some  agreed  plan.  It  may  be  a  gross  sum  in  advance,  a 
monthly  sum,  or  a  certain  share  in  the  crops  to  be  raised  during 
the  term  of  the  lease.  When  a  monthly  rent  is  named,  the  tenant, 
in  the  absence  of  a  special  agreement,  has  until  the  last  of  the 
month  to  make  payment.  When  nothing  is  said  about  the  place 
of  payment,  it  is  sufficient  if  tendered  on  the  premises. 

437.  Landlord's  Covenants.  The  covenants  which  the  land- 
lord usually  makes  in  a  lease  include  guarantees  to  give  the  tenant 
quiet  enjoyment  of  the  property  and  protection  against  mort- 


370  REAL  ESTATE  CONVEYANCES 

gages  and  other  incumbrances,  to  make  necessary  repairs,  and  to 
pay  taxes  and  assessments.  There  may  be  other  covenants 
pecuHar  to  special  cases.  The  covenant  of  quiet  enjoyment 
is  impHed,  and  exists  whether  it  is  stated  or  not.  Under  it  the 
landlord  is  bound  not  to  do  any  act,  nor  to  permit  any 
which  will  materially  aflfect  the  rights  of  the  tenant  in  the  quiet 
enjoyment  of  his  holding.  Any  material  interference  with  the 
tenant's  right  to  the  beneficial  enjoyment  of  the  premises,  will 
amount  to  an  eviction  in  law,  which  will  justify  the  tenant  in 
declaring  the  term  at  an  end,  and  in  refusing  to  be  further  bound 
by  the  terms  of  the  lease.  Without  a  covenant  for  protection 
against  incumbrances,  if  the  tenant  should  be  evicted  by  a 
mortgagee,  he  would  lose  all  his  rights  under  the  lease.  With  the 
covenant,  he  may  sue  the  landlord  for  any  damages  or  losses 
which  are  the  consequence  of  his  eviction. 

The  covenant  to  repair  can  never  rest  upon  mere  implication, 
for  the  common  law,  with  regard  to  expenses  of  this  kind,  pre- 
sumes so  strongly  against  the  tenant,  that  even  though  the  prem- 
ises should  be  burned  to  the  ground,  he  must  continue  to  pay  rent, 
unless  there  is  an  express  covenant  to  the  contrary  in  his  lease, 
and  yet  he  is  given  no  power  to  compel  his  landlord  to  rebuild  the 
structure  destroyed.  But  by  statute  and  precedent  this  rule  has 
been  very  generally  set  aside.  The  custom  very  commonly 
prevails  of  inserting  a  clause  in  all  written  leases  providing  for  the 
suspension  of  rent  "in  case  of  fire  or  other  unavoidable  casualty" ; 
and  that  the  "landlord  may  at  his  option  terminate  the  lease,  or 
repair  the  premises  within  thirty  days,  and  failing  to  do  so,  the 
term  hereby  created  shall  cease  and  determine."  If  the  house  is 
dilapidated  and  disfigured  as  to  paint  and  paper,  locks  and 
blinds,  the  tenant  cannot  demand  their  repair,  in  the  absence  of 
express  agreement.  It  is  therefore  important  for  the  tenant  to 
ascertain  the  condition  of  the  premises  before  taking  possession, 
and  to  obtain  a  specific  agreement  as  to  the  making  of  repairs. 
In  tenements  or  apartments  where  several  tenants  occupy 
various  portions  of  the  premises,  the  landlord  must  keep  the  roof, 
basement,  halls,  entrances,  walks,  and  yard  in  repair,  as  the 
tenants  do  not  individually  control  them,  and  they  are  intended 
for  common  use.  When  the  landlord  covenants  to  repair  and 
fails  to  do  so,  the  tenant  is  seldom  justified  in  refusing  to  pay 


REAL   ESTATE   CONVEYANCES  371 

rent,  but  is  limited  to  a  right  of  action  against  the  landlord  for 
breach  of  the  covenant.  A  covenant  to  renew  the  lease  gives  the 
option  to  the  tenant  either  to  vacate  or  remain  upon  the  premises 
at  the  end  of  the  term.  The  covenant  on  the  part  of  the  tenant 
to  pay  rent  is  generally  implied  and  if  no  stated  sum  is  specified 
the  reasonable  rental  value  is  recoverable  against  him. 

438.  Tenant's  Covenants.  The  tenant  may  also  agree  to  do 
any  of  a  number  of  acts,  the  most  usual  covenants  being  cove- 
nants to  repair;  to  pay  rent,  taxes,  and  assessments;  not  to 
assign  the  lease;  to  use  the  premises  only  for  certain  agreed 
purposes,  or  in  a  particular  manner;  and  to  redeliver  the  prem- 
ises at  the  termination  of  the  period  in  good  condition  and 
repair,  loss  by  fire  and  ordinary  wear  being  generally  excepted. 
As  is  true  with  the  landlord's  covenants,  the  tenant's  covenants 
may  vary  to  suit  the  circumstances  of  the  particular  lease.  In 
the  absence  of  any  agreement  as  to  repair,  the  duty  is  imposed 
upon  the  tenant  to  make  repairs,  but  he  need  not  make  good  the 
ordinary  wear  and  tear  naturally  incident  to  the  use  of  the 
premises  for  the  purpose  for  which  they  were  leased.  Waste,  or 
the  destruction  of  the  premises,  whether  by  his  will  or  his  permis- 
sion or  his  carelessness  is,  of  course,  not  tolerated. 

The  payment  of  rent  according  to  agreement  scarcely 
needs  a  covenant  on  the  part  of  the  tenant,  as  it  will  be  implied, 
and  will  not  ordinarily  be  excused.  Though  fire  or  flood  may 
have  made  the  premises  uninhabitable,  yet  unless  the  tenant" 
has  protected  himself  by  suitable  stipulations  to  the  contrary,  or 
a  local  statute  has  changed  the  rule  of  the  common  law,  he  must 
pay  his  rent. 

When  the  agreement  is  that  the  tenant  is  to  pay  the  taxes 
and  insurance,  the  lease  should  so  state,  for  otherwise  the  duty 
is  upon  the  landlord.  Likewise,  when  the  tenant  is  not  to  have 
the  right  to  assign  his  lease,  or  sublet  the  premises,  the  provision 
should  be  in  the  lease,  for  at  common  law  the  tenant  has  such 
rights,  though  he  cannot  escape  a  personal  liability  to  his  landlord 
for  the  payment  of  the  rent  by  assigning  the  lease  to  another. 
Modern  leases  usually  contain  covenants  against  sub-letting  or 
assigning,  for  the  landlord  generally  desires  to  select  his  own 
tenants. 


372  REAL   ESTATE   CONVEYANCES 

If  the  tenant  covenants  "to  return  and  redeliver  the  premises 
at  the  end  of  the  term,  in  good  order  and  condition,  reasonable 
wear  and  tear  only  excepted,"  he  is  bound  under  this  agreement 
to  rebuild  a  house,  if  it  be  burned  down  during  the  lease.  For 
this  reason,  modern  leases  often  add  to  the  above  exception, 
"damage  by  fire  and  other  unavoidable  accidents  also  excepted," 
or  "damage  by  the  elements  and  acts  of  God  excepted."  These 
have  the  effect  of  relieving  the  tenant  from  the  necessity  of 
rebuilding. 

439.  Tenants'  Fixtures.  There  are  some  improvements  a 
tenant  may  add  during  his  term  which  he  may  take  away  with 
him  at  the  termination  of  his  lease.  The  general  rule  applicable 
to  fixtures  is  that,  as  between  heir  and  executor,  vendor  and 
purchaser,  mortgagor  and  mortgagee,  debtor  and  creditor,  if 
personal  property  be  annexed  to  the  realty,  it  becomes  a  fixture, 
so  that  one  who  takes  the  property,  or  has  a  lien  upon  it  for  a 
debt,  will  get  the  benefit  of  the  improvement.  As  between  land- 
lord and  tenant,  however,  the  modern  doctrine  is  more  favorable 
to  the  tenant,  and  allows  him  to  remove  all  articles  of  personal 
property  annexed  to  the  real  estate  for  purpose  of  trade,  agri- 
culture, or  domestic  use  and  convenience,  when  such  removal 
will  not  result  in  serious  or  permanent  injury  to  the  realty. 

The  method  of  affixing  is  often  important  in  determining  this 
question.  Thus,  if  the  articles  are  fastened  with  screws  this  may 
serve  as  evidence  of  an  intention  to  later  remove  them  and  may 
prevent  them  from  becoming  fixtures.  Among  articles  held  to  be 
removable  by  tenants  in  some  of  the  cases  that  have  come  before 
the  courts  are:  Stoves,  pumps,  gates,  looking  glasses,  stables 
on  blocks,  gas  fixtures,  hop-poles,  machinery  fastened  with 
screws  to  the  floor,  and  similar  articles  of  trade,  agricultural,  or 
domestic  use.  Among  those  held  not  removable  are:  Barns 
built  upon  foundations  set  in  the  ground,  trees,  hedges,  windows, 
locks  and  keys.  Each  question  must  be  decided  upon  its  own 
particular  facts,  for  the  great  determining  factor  always  is  the 
intention  of  the  parties,  as  evidenced  by  their  acts,  at  the  time  of 
annexing  the  article  to  the  freehold. 

440.  Notice  to  Quit.  One  of  the  ways  in  which  a  tenancy 
may  be  terminated  is  by  a  notice  to  quit,  given  in  a  regular 


REAL   ESTATE   CONVEYANCES  373 

manner  and  under  suitable  circumstances.  If  one  holds  a  lease 
for  years,  he  is  not  entitled  to  a  notice  to  quit  at  the  expiration 
of  the  term,  unless  a  statutory  provision  requires  it,  for  he  has 
no  right  to  remain  longer.  But  if,  as  frequently  happens,  the 
landlord  consents  to  the  tenant's  holding  over  after  his  term, 
and  the  tenant  thereby  becomes  a  tenant  from  year  to  year, 
month  to  month,  or  for  whatever  period  rent  is  paid,  the  tenant 
must  be  served  with  a  proper  and  timely  notice  to  quit  the  prem- 
ises before  he  can  be  ejected  by  a  suit.  The  notice  need  not  be 
formal,  but  it  should  specify  the  particular  day  when  the  tenant 
is  required  to  quit,  and  it  must  be  written.  The  length  of  time 
allowed  the  tenant  in  which  to  move  is  very  important,  and  is 
largely  governed  by  statutory  regulations,  which  should  always 
be  consulted.  In  general,  the  notice  to  quit  should  be  given 
one  full  rental  period  before  the  expiration  of  the  lease,  unless 
the  eviction  be  for  the  non-payment  of  rent,  when  a  much  shorter 
period  is  usually  provided.  The  right  of  notice  also  applies  as 
against  the  landlord,  and  the  tenant  from  year  to  year  as  well  as 
the  landlord  may  terminate  the  lease  by  a  proper  notice. 


INDEX 


Abstract  of  title,  365. 

Acceptance,  32;  communication  of, 
34;  of  draft,  106;  implied,  106;  for 
honor,  107;  virtual,  107;  effect  of, 
107;  qualified,  107;  form  of,  110; 
presentment  for,  144. 

Accepted  draft,  144. 

Accommodation  note,  122. 

Accord  and  satisfaction,  74. 

Act  of  God,  242. 

Active  partner,  278. 

Agency,  248-274;  defined,  249;  gen- 
eral, 249;  termination  of,  263; 
dissolution  of,  271,  273. 

Agent,  249;  right  to  contract,  28; 
right  to  compensation,  262,  264; 
to  indemnity,  264;  to  protection, 
265;  of  corporation,  311. 

Agreement,  mutuality  of,  30;  essen- 
tials of,  30-39. 

Alien  enemy,  act  of,  242. 

Aliens  and  alien  enemies,  27. 

Alteration,  of  instrument,  58,  173; 
and  forgery,  131. 

Annual  interest,  161. 

Anticipatory  breach,  65. 

Apparent  consideration,  42. 

Articles,  of  partnership,  279;  of  in- 
corporation, 308. 

Ascertained  goods,  192. 

Assignment,  of  contracts,  87;  inad- 
equacy of,  93;  of  stock  certificates, 
304;  of  insurance  policies,  324;  of 
insurance,  331 ;  of  mortgage,  360. 

Attachment,  72. 

Bailed  property,   redelivery  of,   223. 

Bailee,  205 ;  diligence  required  of,  221 ; 

right  to  use,  222 ;  remedies  of,  228. 


Bailments,  218-224;  defined,  218; 
kinds  of,  219;  benefit  of  bailor,  ,220; 
benefit  of  bailee,  225;  mutual 
benefit,  227;  for  performance  of 
services,  233;  exceptional,  238-247. 

Bailor,  liability  of,  232. 

Baggage,  246. 

Bank  draft,  116. 

Bankruptcy,  59. 

Bearer,  paper  payable  to,  135. 

Beneficiary,  330. 

Benefit  received,  40. 

Bill  of  exchange,  97. 

Bill  of  sale,  188. 

Bills  of  lading,  201;  negotiable,  204. 

Bona  fide  holder,  127. 

Borrower,  liability  of,  226;  rights 
of,  226. 

Breach,  of  contract,  62;  of  warranty, 
remedies  for,  216. 

Burglary  insurance,  335. 

Buyer,  remedies  of,  215. 

Capital  stock,  304;  classes  of,  307. 

Casualty  insurance,  334. 

Caveat  emptor,  209. 

Certificate,  of  deposit,  116;  of  protest, 

155;of  stock,  304. 
Charter,  of  corporation,  297,  302. 
Chattel  mortgage,  198. 
Check,  97;  defined,  112;  form  of,  113; 

certified,   114,   115;  cashier's,   115; 

bank  check,  116;  canceled,  117. 
Civil  law,  5. 
C.O.D.  shipment,  194. 
Collateral  note,  124. 
Collection,  guaranty  for,  170. 
Commercial  law,  6. 
Common   carrier,   of  goods,   240;   of 

passengers,  244;  rights  of,  245. 


375 


376 


INDEX 


Common  law,  3. 

Common  stock,  307. 

Compound  interest,  160. 

Concurrent  condition,  53. 

Conditional  liability,  148. 

Conditional  offer,  32. 

Conditional  sales,  197. 

Conditions  in  contracts,  53. 

Co-maker,  167. 

Connecticut  rule,  partial  pay- 
ments, 164. 

Consideration,  defined,  40;  sufficiency 
of,  for  simple  contracts,  40-44;  for 
formal  contracts,  44;  for  nego- 
tiable paper,  130. 

Constitutional  law,  2. 

Contingent  interest,  342. 

Continuing  guaranty,  171. 

Contract,  defined,  12;  validity  of,  13 
solemnity  of,  14;  under  seal,  15 
parol,  16;  express  and  implied,  16 
executed  and  executory,  17;  joint 
several,  and  joint  and  several,  18 
death  of  joint  contractor,  19 
discharge  of,  52-68;  assignment  of, 
87;  form  of,  89;  to  sell,  179;  form 
of,  184-190. 

Contribution,  right  of,  171. 

Conveyances  of  real  estate,  347-373. 

Corporations,  296-317;  right  to  con- 
tract, 28;  defined,  297;  nature  of, 
298;  kinds  of,  299;  compared  with 
partnerships,  299;  formation  of, 
300;  property  of,  301;  charter  of, 
302;  capital  of,  303;  capital  stock 

'  of,  304;  powers  of,  310;  officers  of, 
311;  de  facto,  314;  dissolution  of 
315;  foreign,  316. 

Courts  of  law,  5;  of  equity,  5;  of 
record,  70. 

Counterclaim,  82. 

Covenants,  and  warranties,  354;  of 
landlord,  369;  of  tenant,  371. 

Credit  insurance,  335. 

Creditors'  rights,  196;  against  part- 
ners,   285;    of    corporations,    313. 


Criminal  acts,  contracts  to  dft^  30. 
Criminal  law,  5. 
Crops,  sale  of,  185. 
Curtesy,  340. 

Damages,  62,  65,  213. 

Death  of  joint  contractor,  19;  of 
joint  guarantor,  174. 

Deeds,  347. 

Defeasance  clause,  358. 

Defenses,  130;  personal,  132. 

Degrees  of  care,  219. 

Delivery,  101,  135;  to  buyer,  195; 
sufficiency  of,  197. 

Demand  draft,  109. 

Deposit,  220. 

Detriment  suffered,  41. 

Directors  of  corporation,  311. 

Disabilities,  21. 

Discharge  of  contracts  by  perform- 
ance, 52;  by  payment,  55;  by  ten- 
der, 55;  by  impossibility,  56;  by 
agreement,  57;  by  operation  of  law, 
58;  by  death,  60;  by  breach,  62-66; 
of  indorsers,  154. 

Dishonor,  148. 

Dissolution  of  partnership,  288-295; 
of  corporation,  315. 

Diversion,  173. 

Divisible  contract,  63. 

Documents  of  title,  203. 

Dormant  partner,  279. 

Dower,  340. 

Draft,  97;  104-111;  transfer,  109; 
sight,  109;  demand,  109,  153; 
time,  110;  accepted,  144. 

Due  course,  126. 

Duress,  37. 

Easements,  343. 

Eminent  domain,  343. 

Employer's    liability,    265;    liability 

insurance,  334. 
Endowment  insurance,  329. 
Equity  of  redemption,  360,  362. 
Escheat,  343. 


INDEX 


377 


Estate,  an,  338;  life,  339;  for  years, 

341; future,  342. 
Executed  and  executory  contracts,  17. 
Execution,  71. 
Exemptions,  71. 
Expectancy,  9. 
Express  contract,  16. 

Failure  of  consideration,  43,  132. 

Fee,  simple-  338. 

Fidelity  insurance,  335. 

Fire  insurance,  321. 

Fixtures,  372. 

Forgery,  131. 

Formal  contracts,  44. 

Franchise  of  corporation,  297. 

Fraud,  37,  215;  contracts  induced  by, 
49;  statute  of,  75;  in  the  tran- 
saction, 132;  on  surety,  172. 

Garnishment,  71. 

Goods,  wares,  and  merchandise,  184. 

Gratuitous  loans,  225. 

Guaranty,  defined,  167;  contract  of, 
168;  kinds  of,  170;  continuing,  171; 
not  negotiable,  174;  validity  of, 
175;  and  suretyship,  167-177;  pol- 
icies, 366. 

Guarantor,  167;  liability  of,  169; 
rights  of,  172;  discharge  of,  174. 

Guests,  238. 

Habendum  et  tenendum,  354. 

Hire,  by  bailee,  231;  by  bailor,  233; 
for  safe-keeping,  235;  for  trans- 
portation, 236. 

Holder  in  due  course,  126-134. 

Holidays,  153. 

Homestead,  341. 

Illegal  acts,  contracts  to  do,  50. 
Illegality  of  consideration,  133. 
Immoral  acts,  contracts  to  do,  49. 
Implied  contracts,  16. 
Implied  acceptance,  106. 
Impossibility,  56. 
Incapacity  of  a  party,  131. 
Incontestable  insurance,  333. 


Indemnity,  right  of,  171. 
Indorsement,  kinds  of,  137;  effect  of, 

138;  in  full,    139;   in   blank,   139; 
.  restrictive,     140;     qualified,     140; 

conditional,  140. 
Indorsers,  contract  of,  141,  167;  may 

become  surety,  174;  irregular,  141. 
Infants,  24. 
Injunction,  6,  73. 
Inn-keeper,  238. 
Innocent  holder,  127. 
Insane  persons,  22. 
Insurable  interests,  322,  330. 
Insurance,  320-336. 
Insured,  322,  330. 
Insurer,  322,  330. 
Intention  to  contract,  30. 
Interest,  defined,  160;  when  payable, 

161;  rate  of,  162;  on  accountSr  162; 

on  partial  payments,  163. 
Intoxicated  persons,  23. 
Joint  and  several  contract,  18. 
Joint  contract,  18. 
Joint     stock     companies,     318-319; 

defined,    318;    discussed,    318-319. 
Joint  tenancy,  10,  345. 
Judgment,  70;  note,  123. 

Lack  of  consideration,  132. 

Land  contract,  364. 

Landlord,  367. 

Law,  defined,  1;  municipal,  2;  kinds 

of,  2;  constitutional,  2;  statute,  3 

common,  3;  order  of  precedence,  4 

courts  of,  5;  civil  and  criminal,  5 

suit  at,  5;  commercial,  6. 
Lease,  367. 
Legal  incapacity,  24. 
Legal  interest,  161. 
Legal  tender,  56. 
Lender,    liability    of,    226;    bailee's 

right  of,  234. 
Lev>-,  71. 
Liability,  of  common  carrier,  242,  245; 

of  employer,  265. 
Lien,  seller's  right  of,  213;  of  agent, 

264. 


378 


INDEX 


Life  insurance,  329-333. 
Limitations,  statute  of,  79. 
Limited  partner,  279. 
Limited  payment  life,  329. 
Liquidation  of  assets,  315. 
Loss  or  detriment  suffered,  41. 
Loss,  proof  and  recovery  of,  325. 

Mandate,  220. 
Marine  insurance,  321. 
Married  women,  27. 
Maturity  of  paper  130. 
Mental  incapability,  21. 
Merchants'  rule,  164. 
Merger,  58. 
Mistake  of  fact,  35. 
Mortgage,  198;  real  estate,  358. 
Mortgagee,  198. 
Mortgagor,  198. 
Municipal  law,  2. 
Mutual  promises,  42. 

Necessities,  infants'  liability  for,  26. 

Negotiable  bills  of  lading,  204. 

Negotiable  instruments,  93-103; 
defined,  96. 

Negotiability,  95. 

Note,  97;  defined,  119;  form  of,  120; 
joint  and  several,  120;  accommo- 
dation, 122;  incomplete,  122;  judg- 
ment, 123. 

Notice,  of  dishonor,  148,  156;  of 
protest,  156;  of  dissolution  of  part- 
nership, 293;  to  quit,  373. 

Novation,  57. 

Oflfer,  31;  communication  of,  31. 
Open  policy,  321. 
Options,  44. 
Ostensible  partner,  278. 

Parol   evidence   rule,    85;     contracts 

by,  16. 
Part  payment,  189. 
Partial  payments,  163. 
Parties,  defined,  21;  competency  of, 

21-29. 
Partners,  kinds  of,  278;  authority  of, 

282;  relations  between,  283. 


Partnership,  275-295;  defined,  275; 
essentials  of,  276;  creation  of,  277; 
articles  of,  279;  dissolution  of,  288- 
295;  limited,  293. 

Pawn,  227. 

Payment,  55;  guaranty  for,  170. 

Personal  accident  insurance,  334. 

Personal  property,  7. 

Place  of  presentment,  146,  152. 

Plate  glass  insurance,  335. 

Pleadings,  69. 

Pledge,  227. 

Police  power,  343. 

Policy,  of  fire  insurance,  320;  of  life 
insurance,  329. 

Post-dating,  117. 

Post  office  department,  246. 

Potential  existence,  181. 

Power  of  attorney,  123. 

Precedent  condition,  53. 

Preferred  stock,  307. 

Premium  of  insurance,  320. 

Presentment,  for  acceptance,  144-150; 
for  payment,  151-159;  of  checks, 
153;  manner  of,  154. 

Price,  181. 

Principal,  249;  duties  to  agent,  262; 
to  third  persons,  265;  disclosed  and 
undisclosed,  266;  responsibility 
of,  267. 

Prior  party,  payment  to,  133. 

Promissory  note,  97,  119. 

Property,  defined,  7;  real  and  per- 
sonal, 7;  in  possession  and  in 
action,  9;  in  expectancy,  9;  how 
held,  10;  real,  337;  how  held,  344. 

Protest,  155. 

Public  justice,  contracts  obstructive 
of,  49. 

Public  policy,  subject  matter  con- 
trary to,  48. 

Quitclaim  deed,  356. 

Real    estate,    337-346;    conveyances 

of,  347-373. 
Real  property,  7. 


INDEX 


379 


Reasonable  time  for  holding 
check,  153. 

Recording  of  deed,  351;  of  mort- 
gages, 362. 

Recovery  of  price,  212;  of  dam- 
ages, 213. 

Reddendum,  354. 

Registration  of  land,  Torrens 
system,  352. 

Release  deed,  363. 

Remainder,  342,  345. 

Remedies,  69-73;  of  seller,  212;  of 
buyer,  212;  for  breach  of  warranty, 
216;  of  mortgagee,  361. 

Rent,  amount  of,  369. 

Replevin,  72. 

Representations  in  insurance, 
323,  332. 

Resale,  right  of,  214. 

Rescinding  of  sale,  214. 

Restraint,  of  trade,  48;  of  mar- 
riage, 48. 

Reversion,  342,  345. 

Revival  of  outlawed  claims,  81. 

Revocation  by  surety  or  guaran- 
tor, 175. 

Rules  of  evidence,  85. 

Sales,  of  personal  property,  178-183; 
at  a  valuation,    182;    determining 
of  value,    186;    bill   of,    188;    con- 
ditional, 197;  of  mortgage,  360. 
Saving  clauses,  81. 
Seal,  15. 

Second  mortgage,  361. 
Securities,  parting  with,  174. 
Servant,  249. 
i      Set-off  and  counterclaim,  82,  133. 
I      Several  contract,  18. 
Severalty,  10. 
Sight  draft,  109. 

Simple    interest,     160;    always    pre- 
sumed, 161. 
»      Special  defenses,  74. 

Specific  performance,  64,  73. 
.      Spendthrifts,  24. 


Statute,  of  frauds,  75,  184;  of  limi- 
tations, 79. 

Statute  law,  3. 

Stockholders.  312. 

Stock  subscription,  309. 

Stoppage  in  transit,  213. 

Straight  life  insurance,  329. 

Subject  matter,  defined,  47;  what  is 
not  valid,  47-51. 

Subrogation,  right  of,  172. 

Subsequent  condition,  53. 

Subsequent  purchaser,  195. 

Subsidiary  terms,  breach  of,  63. 

Substantial  performance,  54. 

Suit  at  law,  5. 

Summons,  69. 

Surety,  167;  liability  of,  168;  rights 
of,  171;  discharge  of,  172. 

Suretyship,  defined,  167. 

Survival  of  contract,  19. 

Telegraph  and  telephone  compan- 
ies, 246. 

Tenancy,  joint  and   several,    10;  in 
common,   10,  346;  joint,  345;  for 
term  of  years,  346;  in  trust,  346. 
^  Tenancies,  kinds  of,  367. 

Tenant,  367. 

Tender,  55. 

Things  in  possession,  9;  in  action,  9. 

Third  persons,  rights  of,  in  contract, 
43;  in  agency,  269. 

Timber,  sale  of,  185. 

Time,  of  performance,  54;  of  present- 
ment, 146,  151. 

Title,  transfer  of,  191-199;  to  C.O.D. 
shipments,  194;  guaranty  insur- 
ance, 334;  abstract  of,  365. 

Torrens  Registration,  352. 

Transactions  with  persons  now 
deceased,  proof  of,  86. 

Transfer,  to  innocent  holder,  127; 
without  indorsement,  135;  by  in- 
dorsement and  delivery,  136;  of 
title,  191-199;  by  bills  of  lading, 
200;  by  documents  of  title.  203. 


380 


INDEX 


Trials  70. 

True  owner,  surrender  to,  228. 

Trust  deed,  363. 

Trust  estate,  346. 

Unascertained  goods,  194. 
Unauthorized      acts      of      corpora- 
tions, 314. 
Undue  influence,  38. 
Unreal  mutual  assent,  35. 
U.  S.  Rule  partial  payments,  163 
Usury,  164, 

Validity  of  contracts,  13. 
Valued  policy,  321. 


Vested  interest.  342. 

Void  instruments,  131. 

Voidable  contracts  of  infants,  24. 

Waiver,  57;  of  presentment,  154;  of 

notice,  156. 
Warranties.    207-211;    defined,    207', 

express,  207;  implied,  207;  of  title, 

209;  remedies  for  breach  of,  216; 

in    insurance,    323,    332;    of    real 

estate,  354. 
Warranty  deed,  353;  special,  355. 
Withdrawal  of  offer.  35. 
Writing,  what  constitutes.  187. 


APPENDIX 


TABLE   OF   LIMITATIONS 

This  table  shows  the  time  limit,  in  years,  for  bringing  actions  on  differ- 
ent classes  of  contracts. 


STATES 


Alabama 

Alaska 

Arizona 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

District  of  Columbia. . 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts 

Michigan 

Minnesota 

Mississippi 

Missouri 


c 

2^ 

0.5 

c 
<u 

S 

bo 

3 

3 

6i 

20a 

6 

6i 

10 

U 

4 

5 

3 

5 

10 

2-4 

4c 

5 

6 

6 

6d 

6 

6 

3 

6t 

20 

3 

3A 

2 

5i 

20 

4 

6i 

7 

4 

5 

6 

5 

10 

20e 

6 

10 

20 

5 

10 

20/ 

3 

5 

5 

5g 

5 

15 

3 

5 

10 

6 

6 

20 

3 

3h 

12 

6 

6i 

20 

6 

6j 

10 

6 

6 

10 

3 

6 

7 

5 

10 

10 

STATES 


Montana   

Nebraska 

Nevada 

New  Hampshire . 

New  Jersey 

New  Mexico .  .  .  . 

New  York 

North  Carolina. . 
North  Dakota. . 

Ohio 

Oklahoma 

Oregon 

Pennsylvania.  .  . 
Rhode  Island . . . 
South  Carolina. 
South  Dakota . . 

Tennessee 

Texas 

Utah 

Vermont 

Virginia , 

Washington 

West  Virginia.. . 

Wisconsin 

Wyoming 


en 
C 

u   u 

u.S 

5 

8 

4 

5 

4/ 

61 

6 

6m 

6 

6 

4 

6 

6 

6 

3 

3j 

6 

6 

6 

15 

3 

5 

6 

6j 

6 

6f 

6 

6 

6 

6 

6 

6i 

6 

6 

2 

4 

4 

6 

6 

6 

2-5 

Si 

3 

6 

5 

10 

6 

6i 

8 

10 

6 

bo 


lOife 

5 

6 
20 
20 

7 
20» 
lOo 
10 
21/> 

5 

10 
20 
20 
20 
20/ 
10 
10 

8 

8 
lOg 

6 
10 
20a 
10 


(a)  J.  P.  judgment  6  yr.  (b)  3  yr.  unless  both  parties  are  merchants, 
(c)  2  yr.  if  executed  outside  of  state,  (d)  20  yr.  on  judgments  rendered 
in  Court  of  Record,  (e)  J.  P.  judgment  10  yr.  (/)  10  yr.  if  not  in  Court 
of  Record  in  state,  (g)  5  yr.  if  between  merchants,  (h)  12  yr.  if  under 
seal,  (j)  20  yr.  if  under  seal.  (/)  10  yr.  if  under  seal,  (k)  J.  P.  Courts 
5  yr.  (/)  2  yr.  if  incurred  out  of  state,  (m)  20  yr.  on  mortgage. 
(k)  Inferior  courts  6  yr.  (o)  7  yr.  if  not  in  Court  of  Record,  (p)  May  be 
kept  alive  indefinitely  alive  by  execution  once  in  five  years,  (g)  20  yr.  if 
execution  made  and  returned. 


381 


382 


APPENDIX 


The  following  table  shows  the  rates  of  interest  and  penalties  for  usury 
in  the  several  states. 


States  and 
Territories 


n 

"re 

o 

1 

01 

X  < 

8% 

8% 

8% 

12% 

6% 

12% 

6% 

10% 

7% 

any 

8% 

any 

6% 

12% 

6% 

6% 

6% 

6% 

8% 

10% 

7% 

8% 

8% 

12% 

7% 

12% 

5% 

7% 

6% 

8% 

6% 

8% 

6% 

10% 

6% 

6% 

5% 

8% 

6% 

any 

6% 

6% 

6% 

any 

5% 

7% 

6% 

10% 

6% 

8% 

6% 

8% 

8% 

any 

7% 

10% 

7% 

any 

6% 

6% 

6% 

6% 

6% 

12% 

Penalty  for  Usury 


Alabama 

Alaska 

Arizona 

Arkansas 

California 

Colorado 

Connecticut , 

Delaware 

Dist.  of  Columbia 

Florida 

Georgia 

Hawaii 

Idaho 

Illinois 

Indiana 

Iowa 

Kansas 

Kentucky 

'  Louisiana 

Maine 

Maryland 

Massachusetts. . . 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada .  .* 

New  Hampshire. 

New  Jersey 

New  Mexico .... 


Forfeiture  of  all  interest. 

Loss  of  interest  if  uncollected;  forfeiture 

of  double  the  interest  if  collected. 
Same  as  Alaska. 

Forfeiture  of  principal  and  interest. 
None. 
None. 

Forfeiture  of  principal  and  interest;  fine. 
Forfeiture  of  sum  equal  to  amt.  loaned. 
Forfeiture  of  all  interest. 
Forfeiture  of  all  interest. 
Forfeiture  of  excess  of  interest. 
Forfeiture  of  excess  of  interest. 
Forfeiture  to  debtor  of  balance  due  and 

to  state  10%  per  year  on  contract. 
Forfeiture  of  all  interest. 
Forfeiture  of  excess  of  interest  over  6%. 
Forfeiture  of  interest  and  costs;  debtor 

pays  8%  to  school  fund. 
Forfeiture  of  double  the  excess  over  10%. 
Forfeiture  of  excess  of  interest. 
Forfeiture  of  all  interest. 
None. 

Forfeiture  of  excess  of  interest. 
Forfeiture   of   all  over    18%   on    loans 

under  $1,000. 
Forfeiture  of  all  interest. 
Forfeiture  of  interest. 
Forfeiture  of  interest. 
Forfeiture  of  all  interest  and  security. 
None. 

Forfeiture  of  all  interest. 
None. 
Forfeiture  of  three  times  the  excess  of 

interest. 
Forfeiture  of  all  interest  and  costs. 
Forfeiture  of  double  excess;  fine. 


APPENDIX 


383 


States  and 
Territories 


Qi 


n) 
en     4> 

X  < 


Penalty  for  Usury 


New  York 

North    Carolina.. 

North  Dakota 

Ohio 

Oklahoma 

Oregon 

Pennsylvania 

Philippine  Islands. 

Porto  Rico 

Rhode  Island 

South  Carolina. .  . 
South  Dakota .... 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington 

West  Virginia.  .  .  . 
Wisconsin 

Wyoming 


6% 
6% 

7% 
6% 
6% 
6% 
6% 
6% 
6% 
6% 
7% 
7% 

6% 


6% 
8% 
6% 
6% 
6% 

6% 
6% 

8% 


6% 
6% 

12% 
8% 
10% 
10% 
6% 
any 

1^  /o 
any 
8% 

12% 

6% 


10% 

12% 

6% 

6% 

12% 

6% 
10% 

12% 


F"orfeiture  of  principal  and  interest. 
Forfeiture    of    double    the   amount    of 

interest. 
Forfeiture  of  all  interest. 
Forfeiture  of  excess  of  interest  over  8%. 
Forfeiture  of  all  interest. 
Forfeiture  of  interest  and  principal. 
Forfeiture  of  excess  of  interest. 

Loss  of  entire  interest. 

None. 

Forfeiture  of  all  interest. 

Forfeiture  of  all  interest;  also  a  mis- 
demeanor. 

Forfeiture  of  principal  and  interest  if 
in  writing;  otherwise,  forfeiture  oi 
interest. 

Forfeiture  of  all  interest. 

Forfeiture  of  principal  and  interest. 

Forfeiture  of  excess  of  interest. 

Forfeiture  of  all  interest. 

Loss  of  interest  if  uncollected;  forfeiture 
of  double    interest  if  collected. 

Forfeiture  of  excess  of  interest. 

Loss  of  all  interest;  forfeiture  of  treble 
interest  if  collected. 

Forfeiture  of  interest. 


384  APPENDIX 

EXEMPTIONS 

In  most  states  debtors  are  protected  by  laws  which  exempt  certain  pro- 
perty from  seizure  by  creditors.  The  property  so  exempt  usually  includes 
homestead,  personal  property  specified  as  to  kind  or  value  or  both,  and  part 
or  all  of  the  wages  of  the  debtor  for  a  specified  period.  Homestead  and 
other  exemption  laws  can  usually  be  waived  by  special  agreement  and  exemp- 
tions are  generally  not  valid  as  against  the  purchase  price  of  the  property 
exempted.  In  some  states  exemptions  are  not  valid  against  properly  recorded 
mortgages,  even  in  the  absence  of  waiver.  The  following  list  of  exemptions 
by  states  is  as  nearly  correct  as  these  can  be  stated  in  abbreviated  form. 
The  statutes  of  the  various  states  should  be  consulted  for  exact  statements 
of  details. 

Alabama  —  Homestead,  house  and  lot  in  city  or  160  acres  in  country;  must 
not  exceed  $2000.  Personal  property,  $1000  and  specified  items.  Wages, 
$25  a  month. 

Alaska — Homestead,  j  acre  in  city  or  160  acres  in  country;  must  not  exceed 
$2500.  Personal  property,  specified  items  with  various  limits  of  value. 
Earnings  for  60^days  preceding  levy  when  necessary  for  the  support  of 
family. 

Arizona  —  Homestead,  $4000;  claim  must  be  recorded.  Personal  property, 
specified  items  with  various  limits  of  value.  Half  of  earnings  for  30 
days  preceding  levy. 

Arkansas  —  Homestead,  1  acre  in  city,  160  acres  in  country,  not  exceeding 
$2500  in  value;  or  \  acre  in  city  or  80  acres  in  country,  any  value.  Per- 
sonal property,  married  man  $500;  single  man  $200  and  wearing  apparel. 
Laborer's  wages  for  60  days  preceding  levy. 

California  —  Homestead,  S5000.  Personal  property,  specified  items  in 
varying  amounts.  Wages  for  30  days  if  necessary  for  support  of  family. 
J  of  wages  is  liable  for  debts  for  necessities. 

Colorado  —  Homestead,  S2000;  claim  must  be  recorded.  Personal  property, 
specified  items  in  var>'ing  amounts.  60%  of  wages.  All  wages  if  $5 
per  week  or  less. 

Connecticut  —  Homestead,  $1000;  claim  must  he  recorded.  Personal 
property,  sp)ecified  items  in  varying  amounts.     Wages,  $50. 

Delaware  —  Homestead,  none.  Each  county  has  a  special  law  for  exemp- 
tions of  personal  property. 

District  of  Columbia  —  Personal  property,  specified  items  in  varying  amounts. 
Wages  for  2  months  preceding  levy,  not  to  exceed  $100  per  month. 

Florida  —  Homestead,  5  acre  in  city,  160  acres  in  countr>'.  Personal  prop- 
erty, $1000  to  heads  of  families  residing  in  the  state.     All  wages. 

Georgia  —  Homestead,  the  state  constitution  allows  $1600  realty  or  person- 
alty, or  both;  the  statutes  allow  50  acres  of  land  and  five  acres  additional 
for  every  child  under  16.  Personal  property,  specified  items.  All  labor- 
ers' wages. 

Idaho  —  Homestead,  $5000  for  head  of  family;  $1000  for  single  person.  Per- 
sonal property,  specified  items.     Wages  for  30  days. 

Illinois  —  Homestead,  SIOOO.  Personal  property,  married,  $400;  single, 
$100.     Wages,  $15  a  week  for  head  of  family. 

Indiana  —  Homestead,  $600,  real  or  personal  property,  or  both,  to  resident 
householders  and  resident  married  women.  1  month's  wages,  not  ex- 
ceeding $25. 


APPENDIX  385 

Iowa  —  Homestead,  |  acre  in  city,  40  acres  in  country,  or  any  size  if  less 
than  $500  in  value.  Personal  property,  specified  items  in  varying  amounts. 
Wages  for  90  days. 

Kansas  —  Homestead,  1  acre  in  city,  160  acres  in  country.  Personal  prop- 
erty, specified  items.     Wages  for  3  months  preceding  levy. 

Kentucky  —  Homestead,  $1000.  Personal  property,  specified  items.  ■  Wages 
90%  if  $75  per  month  or  less;  $67.50  if  more  than  $75  per  month. 

Louisiana  —  Homestead,  $2000  if  not  over  160  acres;  claim  must  be  regis- 
tered.    Personal  property,  specified  items.     All  wages  of  laborers. 

Maine  —  Homestead,  $500;  must  be  recorded.  Personal  property,  specified 
items.     Wages,  $20,  not  good  as  against  debts  for  necessities. 

Maryland  —  Personal  property,  $100.  Wages  to  the  amount  of  $100. 
Attachment  does  not  reach  wages  accruing  after  date  of  levy. 

Massachusetts  —  Homestead,  $800;  claim  must  be  recorded.  Personal 
property,  specified  items.  Wages,  $20;  only  $10  against  debts  for 
necessities. 

Michigan  —  Homestead,  $1,500;  must  not  exceed  1  lot  in  city  or  40  acres 
in  country.  Personal  property,  specified  items  in  varying  amounts. 
Household  goods,  $250.  Stock  in  trade,  $250.  Wages,  householder, 
$8  to  $30;  single  man,  $4  to  $15. 

Minnesota  —  Homestead,  1  lot  in  city,  ^  acre  in  town,  80  acres  in  country. 
Homestead  not  allowed  single  men  unless  they  actually  reside  on  the  lot. 
Personal  property,  specified  items  in  varying  amounts.  Wages  for  30 
days  preceding  levy,  not  exceeding  $35. 

Mississippi  —  Homestead,  $2,000;  if  in  the  country  must  not  exceed  160 
acres;  may  be  increased  to  $3000  by  filing  homestead  declaration.  Per- 
sonal property,  specified  items  in  varying  amounts.  Wages,  $50  per 
month  to  head  of  family,  except  when  due  for  board  and  lodging. 

Missouri  —  Homestead,  $3000  in  city;  $1500  in  country  and  small  towns. 
Personal  property,  specified  items  and  $300  in  personal  property  or  real 
estate.     90%  of  wages  for  30  days. 

Montana  — -  Homestead,  $2500.  Not  to  exceed  j  acre  in  city  or  160  acres 
in  country.     Personal  property,  specified  items.     Wages  for  45  days. 

Nebraska  —  Homestead,  $2000;  not  to  exceed  2  lots  in  city  or  160  acres  in 
country.  Personal  property,  specified  items;  also  $500,  if  debto*"  has  no 
land.     90%  of  wages  of  head  of  family. 

Nevada  —  Homestead,  $5000.  Personal  property,  specified  items.  Wages 
not  exceeding  $50  earned  in  calendar  month  during  which  process  issues. 

New  Hampshire  —  Homestead,  $500.  Personal  property,  specified  items. 
Wages,  $20,  not  good  as  against  debts  for  necessaries. 

New  Jersey  —  Homestead,  $1000  if  advertised  and  recorded.  Personal 
property,  $200  and  wearing  apparel.     All  wages. 

New  Mexico  —  Homestead,  $1000.  Personal  property,  specified  items. 
Wages  for  3  months  except  for  necessaries. 

New  York  —  Homestead,  $1000,  provided  deed  creating  the  estate  states 
that  property  is  to  be  held  as  a  homestead.  Personal  property,  certain 
specified  items  and  $250  worth  in  addition.  Wages  of  self  and  minor 
children  for  60  days  if  necessary  for  support  of  family. 

North  Carolina  —  Homestead,     SIOOO.     Personal     property,     $500.     Wages 

for  60  days  if  necessary  for  support  of  debtor's  family. 
North  Dakota  —  Homestead,  $5000;  if  widow  or  widower  occupy  premises 

the  same.     Personal  property,  specified  items.     Wages,  none. 


386  APPENDIX 

Ohio  —  Homestead,  $1000,  $500  in  lieu  of  homestead.  Personal  property, 
specified  items.  Wages,  personal  earnings  of  self  and  minor  children 
earned  within  3  months  if  necessary  for  support  of  family.  If  debt  is  for 
"necessaries,"  10%  of  personal  earnings  is  not  exempt. 

Oklahoma  —  Homestead,  1  acre  in  city  or  town,  160  acres  in  country,  in- 
cluding improvements  to  $5000.  Personal  property,  specified  items. 
"Current  wages  for  90  days"  to  head  of  family. 

Oregon  —  Homestead,  $1500,  but  in  no  instance  less  than  1  lot  in  city  or 
town  or  20  acres  in  country.  Personal  prof)erty,  specified  items.  30 
days'  wages  not  exceeding  $75  if  necessary'  for  support  of  family.  When 
debt  is  for  family  expenses  within  last  6  months,  50%  of  wages  not 
exempt. 

Pennsylvania  —  Homestead,  none.  Personal  property,  $300;  not  limited 
to  personalty,  but  may  be  allowed  out  of  real  estate.     Wages,  all. 

Rhode  Island  —  Homestead,  none.  Personal  property,  household  furniture 
to  $300,  working  tools,  books  to  value  $300,  professional  library  and  sev- 
eral other  items.  Wages,  $10  exempt  except  as  against  debts  for  neces- 
sities; salary  and  wages  of  wife  and  minor  children. 

South  Carolina  —  Homestead,  $1000.  Personal  property,  $500  to  head  of 
family;  $300  to  single  man.  Wages  for  60  days,  if  family  depends  on 
them. 

South  Dakota  —  Homestead,  1  acre  in  town  or  city,  160  acres  in  country, 
value  $5000.  Personal  property,  $750  to  heads  of  families;  $300  and 
specified  items  to  single  persons  not  heads  of  families.  Wages  for  60 
days  if  necessary  to  support  of  family. 

Tennessee  —  Homestead,  $1000.  Personal  property,  specified  items.  Wages 
90%,  up  to  $40. 

Texas  —  Homestead,  $5000  lot  in  city  and  improvements  or  200  acres  and 
improvements  in  country.  Personal  property,  specified  items.  Wages, 
all. 

Utah  —  Homestead,  $1500,  also  $500  wife,  and  $250  each  child.  Personal 
property,  specified  items  not  exceeding  $1000.  Wages,  I  wages  for  30 
days,  $30  per  month  if  wages  be  less  than  $2  per  day. 

Vermont  —  Homestead,  $500.  Personal  property,  specified  items.  Wages, 
$10. 

Virginia  —  Homestead .  $2000.  Personal  property,  specified  items.  Wages, 
not  exceeding  $50  per  month. 

Washington  —  Homestead,  $2000;  homestead  declaration  necessary.  Per- 
sonal property,  specified  items;  to  householder  $1000  in  addition.  Wages, 
current  wages  to  the  amount  of  $100,  if  family  is  dependent  thereon,  with 
certain  exceptions. 

West  Virginia  —  Homestead,  $1000.  Personal  property,  specified  articles. 
Wages,  none. 

Wisconsin  —  Homestead,  I  acre  in  town  or  40  acres  in  country,  if  less  than 
$5000.  Personal  property,  specified  items.  Wages,  3  months  not  exceed- 
ing $60  per  month. 

Wyoming — Homestead,  $1500.  Personal  property,  $800  to  married  man; 
$300  to  single  man;  also  wearing  apparel.  Wages,  ^  of  wages  for  60  days 
if  necessary  for  support  of  family. 


GLOSSARY 

Abandonment.     The  relinquishing  of  salvage  to  the  insurers  with  a  view  to 

claiming  the  full  amount  of  insurance. 
Abatement.     Discount  or  reduction  in  price. 
Acceptance.     The  agreement  (usually  written  on  the  bill)  by  the  drawee  of  a 

draft  to  comply  with  the  request  of  the  drawer. 
Accord  and  satisfaction.     The  settlement  of  a  dispute  by  an  executed  agree- 
ment between  the  parties  whereby  the  aggrieved  party  takes  something 

different  from  his  claim. 
Acknowledgment.     The  avowal  of  the  genuineness  of  one's  signature  to  a 

document. 
Acquittal.     A  judicial  discharge;  a  verdict  of  not  guilty. 
Action.     A  legal  process  or  suit. 
Act  of  God.     An  inevitable  accident  against  which  ordinary  prudence  could 

not  guard. 
Adjudication.     A  judicial  decision  or  sentence. 
Administer.     To  settle,  as  an  administrator,  the  estate  of  a  person  dying 

without  making  a  will. 
Administrator.     One  appointed  by  a  competent  authority  to  settle  the  estate 

of  a  person  who  died  without  leaving  a  will. 
Advancement.     A  payment  made  to  a  child  by  a  parent  to  be  considered  as  a 

part  of  his  share  of  such  parent's  estate. 
Affidavit.     A  statement  or  declaration  sworn  to  before  some  one  authorized 

to  administer  oaths. 
Affirm.     To  make  a  solemn  promise  to  tell  the  truth  under  the  penalties  of 

perjury. 
Alias.     A  Latin  word  meaning  otherwise. 
Alibi.     Elsewhere. 

Alien.     A  foreigner  w'no  is  not  naturalized  in  the  country  of  his  residence. 
Alienate.     To  transfer  property,  particularly  real  property. 
Alimony.     The  allowance  granted  to  a  woman  on  a  legal  separation  from 

her  husband. 
A  mensa  et  thoro.     From  table  and  bed ;  a  limited  divorce. 
Appraise.     To  set  a  price  upon. 
Appurtenance.     Something   belonging   to   another   thing   and    which    passes 

with  it  as  an  incident  such  as  a  right  of  way. 
Arbitration.     The  trial  of  a  cause  in  controversy  by  an  unofficial  person  or 

persons  chosen  by  the  contestants. 
Arraign.     To  call  to  answer  to  an  indictment  before  a  court. 
Assault.     An  attempt  to  do  corporal  injury  to  another. 
Assign.     To  make  over  to  another. 
Assignee.     One  to  whom  a  right  or  property  is  made  over 

387 


388  GLOSSARY 

Assignor.     One  who  transfers  an  interest  in  property. 

Assigns.     Persons  to  whom  property  mentioned  in  a  deed  may  be  assigned. 

Attach.     To  take  by  a  writ  of  attachment. 

Attestation.     The  act  of  witnesses  in  avowing  the  execution  or  signature  to 

a  deed  or  other  document. 
Attorney  in  Fact.     An  agent  appointed  by  a  power  of  attorney. 
Bail.     To  release  on  security. 

Bailee.     One  to  whom  the  goods  of  another  are  delivered. 
Bailment.     The  delivery  of  goods  to  another  in  trust  for  a  certain  purpose. 
Bailor.     One  who  delivers  goods  in  trust. 
Bankrupt  Law.     A  law  by  which  if  an  insolvent  debtor  assigns  all  his  property 

to  another  to  be  used  for  the  common  benefit  of  his  creditors  he  is  forever 

discharged  from  further  payment  of  his  existing  debts. 
Barter.     To  traffic  by  an  exchange  of  commodities. 
Battery.     The  unlawful  beating  of  another. 

Beneficiary.     One  who  receives  an  income  from  a  fund  or  an  estate. 
Betterment,     Improvements  made  on  real  estate. 
Bigamy.     The  offense  of  contracting  a  second  marriage  while  an  undivorced 

husband  or  wife  still  lives. 
Bill.     A  formal  complaint  or  petition  to  a  court  of  equity.     A  proposed  law. 
Bill  of  Lading.     A  written  contract  of  a  transportation  company  acknowledg- 
ing the  receipt  of  goods  and  undertaking"  to  carry  and  deliver  them  to  a 

certain  place  for  a  consideration. 
Bill  of  Sale.     A  writing  under  seal  conveying  the  title  to  personal  property. 
Bona  fide.     In  good  faith. 
Bond.     A  writing  under  seal  agreeing  to  pay  a  certain  sum  of  money  or  perform 

a  certain  act. 
Burglary.     The  crime  of  breaking  open  and  entering  the  dwelling  or  place  of 

business  of  another  with  intent  to  commit  a  felony. 
By-law.     A  rule  or  law  agreed  upon  by  the  members  of  a  society  or  corporation 

for  their  action. 
Caveat.     A   warning   or   caution;  an    instrument    securing   to   an    inventor 

exclusive  rights  to  his  invention  before  the  f)atent  is  granted. 
Cestuy  que  trust.     The  beneficiary  in  a  trust. 
Chancery.     A  court  of  equity. 
Charge.     To  lay  or  impose  a  duty  or  obligation. 
Charter.     A  written  instrument  executed  by  the  sovereign  power  granting 

a  special  provilege  or  exemption. 
Chattel.     Any  specie  of  personal  property. 
Chattel  Mortgage.     A  mortgage  on  personal  propert3^ 
Chose  in  Action.     Any  personal  chattel  of  which  one  has  not  the  possession 

but  a  right  of  action  to  reduce  it  to  possession. 
Chose  in  Possession.     Personal  property  in  possession. 
Civil  Law.     The  Roman  law;  the  municipal  law. 
Client.     One  who  employs  an  attorney. 
Collateral.     Side  by  side  and  not  in  a  direct  line. 


GLOSSARY  389 

Collateral  Security.     An  obligation  given  to  guarantee  the  performance  of 

another  contract. 
Common  Law.     Those  customs,  rules  and  decisions  that  in  consequence  of 

long  usage  have  now  come  to  have  the  full  force  and  effect  of  law. 
Concurrent.     Running  side  by  side  in  point  of  time. 
Condition  Precedent.     See  page  53. 
Condition  Subsequent.     See  page  53. 
Consanguinity.     Relationship  by  blood  or  birth. 
Conservator.     A  guardian. 

Consideration.     The  motive;  the  legal  inducement  to  enter  into  a  contract. 
Contract.     An  agreement  between  two  or  more  competent  persons  based  on  a 

consideration  to  do  or  not  to  do  some  lawful  thing. 
Copyright.     The  exclusive  right  given  an  author  to  his  production. 
Corporation.     An   artificial   person;  a   body   of   persons  associated  together 

by  law  and  endowed  with  the  power  of  acting  for  some  purposes  as  a  single 

individual. 
Coverture.     The  legal  condition  of  a  woman  during  marriage. 
Curtesy.     The  life  estate  a  husband  has  in  real  projjerty  of  his  deceased  wife 

when  there  has  been  a  child  born  capable  of  inheriting  the  same. 
Covenant.     A  mutual  agreement  in  writing. 

Crime.     A  violation  of  law,  punishable  by  death,  a  fine,  or  imprisonment. 
Damages.     A  money  satisfaction  for  an  injury. 
Declaration.     The  plaintiff's  cause  of  action  in  a  suit,  set  forth  in  a  legal  and 

orderly  manner. 
Decree.     The  judgment  or  decision  of  a  court  of  equity. 
Deed.     A  writing,  signed,  sealed  and  delivered. 
De  facto.     In  fact;  in  reality. 

Default.     An  omission  to  do  that  which  ought  to  be  done. 
Defendant.     The  party  against  whom  an  actions  brought. 
Demise.     The  conveyance  of  real  property. 
Demur.     To  pause;  to  raise  an  objection. 
Deponent.     One  who  makes  oath  to  a  written  statement. 
Devise.     To  grant  by  will,  mostly  used  of  real  estate. 
Devisability.     Want  of  the  legal  capacity  to  do  a  thing. 
Dishonor.     Refusal  or  neglect  to  accept  or  pay  a  draft. 
Distrain.     To  seize  the  goods  of  a  tenant  for  payment  of  rent. 
Domicile.     The  habitation  of  a  person. 
Dower.     The  estate  a  widow  has  in  the  real  estate  her  husband  owned  during 

marriage. 
Draft.     An  order  or  request  drawn  by  one  party  on  another  for  a  certain  sum 

of  money. 
Due  Bill.     An  acknowledgment  of  a  debt  in  writing. 
Duress.     The  state  of  compulsion  in  which  a  person  is  illegally  influenced  to 

incur  a  liability  or  release  a  claim. 
Earnest.     Part  of  the  purchase  price  paid  to  evidence  the  ratification  of  a 

bargain. 


390  GLOSSARY 

Easement.     A  privilege,  such  as  a  right  of  way. 

Eminent  Domain.     The  right  of  a  sovereign  body  to  take  private  property 

for  public  use. 
Emblements.     Growing  crops. 

Entailment.     The  act  of  giving  an  estate  and  directing  its  future  descent. 
Equity.     A  system  of  jurisprudence  supplemental  to  law. 
Equity  of  Redemption.     The  estate  still  held  by  a  mortgagor. 
Escheat.     The  falling  back  or  reverting  of  the  title  to  lands  on  the  death  of  the 

owner  leaving  no  heirs. 
Escrow.     A  deed  or  other  written  instrument  delivered  to  a  third  person 

to  be  held  till  some  certain  contingency  happens  and  then  delivered  to 

the  grantee. 
Estate.     The  quantity  of  interest  a  person  has  in  property. 
Estop.     To  bar  or  hinder  by  some  rule  of  law. 
Execution.     That  writ  which  empowers  an  officer  to  execute  a  judicial  sentence ; 

the  signing,  sealing  and  delivering  of  a  deed. 
Executor.     One  who  is  named  in  a  will  to  execute  its  provisions. 
Ex  post  facto  law,     A  law  which  makes  an  act  done  before  its  passage  a  crime. 
Fee  Simple.     An  absolute  estate  of  inheritance  free  from  any  conditions. 
Fee  Tail.     An  estate  of  inheritance  descendible  to  a  certain  line  of  heirs. 
Felony.     A  crime  punishable  by  death  or  imprisonment. 
Feme  Sole.     An  unmarried  woman. 

Foreclosure.     A  legal  proceeding  which  extinguishes  a  mortgagor's  estate. 
Franchise.     A  right  or  privilege. 
Freehold.     Any  estate  of  inheritance  or  a  life  estate. 
Grant.     To  convey  by  deed. 
Gtiarantor.     One  who  agrees  to  warrant  the  performance  of  .some  act  by 

another. 
Guardian.     One  named  to  have  the  care  and  custody  of  the  p>erson  or  property 

of  one  legally  incapable  of  managing  his  own  affairs. 
Heir.     One  who  inherits. 

Heirloom.     Any  chattel  which  by  law  descends  with  land  to  the  heir. 
Hereditament.     Anything  which  may  be  inherited. 
Incorporate.     To  form  into  a  corporation. 
Indorse.     To  put  one's  name  on  the  back  of  an  instrument  with  intent   to 

evidence  a  contract. 
Infant     A  person  not  of  age. 
Injunction.     A  writ  issued  by  a  court  of  equity  prohibiting  a  person  from  doing 

a  certain  thing. 
Inquest.     A  judicial  inquiry. 
Intestate.     Dying  without  making  a  will. 
Joint  Stock  Company.     A  partnership  partaking  of  some  of  the  features  of  a 

corporation. 
Joint  Tenancy.     That  peculiar  method  by  which  two  or  more  persons  hold 

real  property  in  common,  the  share  of  one  to  go,  on  his  death,  to  the 

survivor  or  survivors. 


GLOSSARY  ^  391 

Judgment.     Decision  of  a  court. 

Jurisdiction.     The  legal  authority  of  a  court. 

Law  Merchant.  A  system  of  rules  deduced  from  the  customs  of  mer- 
chants, by  which  trade  and  commerce  are  regulated. 

Lease.     The  instrument  by  which  an  estate  for  years  is  conveyed. 

Legacy.     A  gift  of  goods  and  chattels  by  will. 

Legal  Tender.  That  money  which  the  law  authorizes  a  debtor  to 
offer  in  payment  of  a  debt. 

Lien.  A  right  to  retain  another's  property  until  a  demand  is  satis- 
fied; a  charge  upon  real  or  personal  property. 

Liquidated  Damages.  That  sum  of  money  agreed  upon  in  advance  as 
damages  in  case  of  a  breach  of  an  agreement. 

Malfeasance.     A  wrongful  act. 

Mandamus.  A  writ  issued  by  a  superior  court  to  an  inferior,  or  to  an 
officer,  commanding  something  to  be  done. 

Merger.     The  absorption  of  one  contract  by  another. 

Misdemeanor.     An  offense  punishable  by  a  fine  only. 

Mortgage.     A  deed  with  a  clause  of  defeasance;  a  pledge. 

Negotiability.  That  property  of  certain  contracts  by  virtue  of  which 
when  they  are  transferred  under  certain  conditions,  they  pass  free 
and  clear  of  defenses. 

Notary  Public.  A  public  officer  before  whom  acknowledgments  of 
deeds,  oaths,  etc.,  may  be  taken. 

Ordinance.     A  law  of  a  minor  municipal jcorporation. 

Parol.     By  word  of  mouth. 

Parol  Contract.     Any  contract  not  under  seal. 

Plea.  The  formal  allegation  of  fact  which  a  defendant  makes  to  the 
plaintiff's  declaration. 

Pledge.     Anything  deposited  as  security. 

Politic.     Promoting  good  policy. 

Posthumous.     Born  after  the  death  of  the  father. 

Post  mortem.     Made  after  death. 

Power  of  Attorney.  The  sealed  instrument  by  which  one  appoints 
another  to  act  in  a  given  matter  for  him. 

Presumption.     An  inference  of  law  from  certain  facts. 

Primogeniture.  The  right  of  the  eldest  son  to  inherit  his  ancestor's 
estate  to  the  exclusion  of  younger  sons. 

Probate.     To  prove;  to  prove  a  will. 

Property.     The  exclusive  right  one  has  to  anything. 

Protest.  An  act  by  a  notary  done  for  want  of  payment  of  a  note  or 
draft  or  the  acceptance  of  a  draft. 

Proxy.     A  substitute. 

Quantum  meruit.     So  much  as  it  deserves. 

Quantum  valebat.     So  much  as  it  is  worth. 

Quasi.     As  though. 

Quo  Warranto.     By  what  right. 


392  GLOSSARY 

Real  Estate.     Property  consisting  of  lands  and  all  that  is  permanently  at- 
tached thereto. 
Realty.     Real  estate. 
Recognizance.     A  bond. 

Recoup.     To  keep  back  part  as  a  claim  for  damages. 
Release.     A  relinquishment  of  some  right;  a  quit  claim  deed. 
Remainder.     An  estate  to  take  effect  after  another's  estate  is  determined. 
Replevin.     An  action  to  recover  the  possession  of  goods  wrongfully  taken 

and  detained. 
Residuary  Devisee.     The  person  named  in  a  will  to  have  the  balance  or 

remainder  after  all  other  devisees  are  paid. 
Salvage.     A  compensation  for  saving  a  vessel  from  wreck. 
Scilicit.     To-wit;  namely;  abbreviated  in  legal  documents  to  ss. 
Sentence.     The  judgment  of  the  court  in  a  criminal  case. 
Specialty.     A  contract  under  seal. 
Specific  Performance.     An  action  in  a  court  of  equity  to  compel  a  party  to 

perform  his  contract  in  precise  terms. 
Statute.  A  law  made  by  the  legislature. 
Subpoena.     A  writ  commanding  the  attendance  of  a  person  in  court  under 

penalty. 
Subrogation.     The  substitution  of  another  as  a  creditor. 
Summon.     To  give  notice. 

Tenant.     One  who  has  the  temporary  possession  of  the  lands  of  another. 
Tender.     An  offer  of  a  chattel  or  money  in  satisfaction  of  a  debt. 
Tenure.     The  mode  by  which  one  holds  an  estate  in  lands. 
Testament.     A  will. 
Testator.     One  who  dies  leaving  a  will. 
Tort.     A  wrongful  act  for  which  an  action  will  lie. 
Trust  Deed.     A  deed  conveying  real  estate  to  another  to  be  held  in  trust 

for  the  benefit  of  a  third  person. 
Unilateral.     One  sided. 
Usury.     Illegal  interest. 
Vendor.     A  seller. 

Verdict.     The  decision  of  a  jury  reported  to  the  court. 

Vested.     Fixed;  already  in  force;  not  liable  to  be  set  aside  by  a  contingency 
Waive.     To  relinquish. 
Warrant.     To  guarantee. 
Waste.     The  destruction  done  or  permitted  to  houses  or  woods  of  an  estate 

by  the  tenant  thereof. 
Will.     An  instrument  by  which  a  person  disposes  of  his  property  to  take 

effect  after  his  death. 


■JC  SOUTHERN  REGIONAL  ,;BaARY  FACiLll 


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